Central bond yields are expected to tread water on Tuesday, with traders cautious ahead of the Feb 26 federal budget that will outline the government's borrowing plan for the new fiscal year beginning April.

The Reserve Bank of India Governor Duvvuri Subbarao said last week the central bank had factored in government forecasts of a budget deficit of 5.5 per cent of GDP for 2010/11 into its estimates, and said there would be challenges in managing government borrowing.

Traders are also awaiting December industrial output data on Friday, and wholesale price inflation for January on Monday for cues on policy moves. On Monday, the yield on the benchmark 10-year bond ended steady at 7.68 per cent, off an intraday low of 7.64 per cent.

Longer-dated US Treasury debt prices edged higher on Monday on worries over the fiscal health of some European countries' debt, and ahead of the Treasury Department's $40 billion auction of three-year notes.