India bond yields seen little changed; traders eye fresh directional cues

By Dharamraj Dhutia

MUMBAI, June 19 (Reuters) - Indian government bond yields are likely to be little changed in opening deals on Thursday, as oil prices were steady, while the U.S. Federal Reserve policy decision did little to affect sentiment.

The yield on the benchmark 10-year bond is expected to move between 6.26% and 6.29%, a trader at a private bank said, compared with the previous close of 6.2615%. The five-year 6.75% 2029 bond ended at 5.9434% on Wednesday.

"The Fed decision turned out to be a sort of non-event and even oil did not move much yesterday, so overall we should see a sideway trend in bonds," the trader said.

Apart from oil, the market will also eye demand at the debt auction and the minutes of the Reserve Bank of India's latest monetary policy meeting, both due on Friday, the trader added.

The Fed held interest rates steady on Wednesday and maintained expectations for two rate cuts this year, but a rising minority also expects no rate cuts at all.

Fed Chair Jerome Powell cautioned against putting too much weight on rate cuts and said he expects "meaningful" inflation ahead.

The 10-year U.S. yield stayed around 4.40%, while the benchmark Brent crude remained around $76 per barrel.

Brent has gained over 10% in the last five sessions on worries that the Iran-Israel conflict could disrupt supplies.

India imports a bulk of its crude oil needs and higher prices could impact the nation's inflation outlook.

Earlier this month, the RBI reduced its inflation forecast for the current year to 3.7%, while cutting its key lending rate by a steeper-than-expected 50 basis points.

It, however, reverted to a "neutral" stance from "accommodative", prompting analysts to forecast the end of the easing cycle.

RATES

Indian overnight index swap (OIS) rates are expected to be range-bound.

The one-year OIS rate was at 5.48%, while the two-year OIS rate was at 5.46%. The liquid five-year ended at 5.68%.

KEY INDICATORS: ** Brent crude futures fell 0.4% to $76.40 per barrel after rising 0.3% in the previous session ** Ten-year U.S. Treasury yield at 4.3950%; two-year yield at 3.9410% (Reporting by Dharamraj Dhutia; Editing by Eileen Soreng)