MUMBAI, June 7 (Reuters) - Indian government bond yields were flattish in the early session on Friday as investors awaited the Reserve Bank of India's monetary policy decision due at 10:00 a.m. IST, with a major focus on guidance.
India's benchmark 10-year yield was at 7.0143% as of 9:45 a.m. IST, following its previous close of 7.0112%.
"The policy is largely expected to be a non-event as major decisions are unlikely. It would take some strong positive commentary for the benchmark yield to dip below 7% again," a trader with a primary dealership said.
Bond yields shot up on Tuesday and have largely remained elevated after a weakened mandate for Prime Minister Narendra Modi's party and alliance raised concerns about a potentially slower pace of fiscal consolidation, alongside increased welfare spending.
The RBI is widely expected to keep interest rates steady and retain its tighter monetary stance at its policy review, amid robust economic growth and an uncertain inflation outlook.
A weaker majority for the Modi-led alliance may increase welfare spending but not result in additional borrowing, limiting a rise in bond yields, said Rajeev Mohan, president of treasury and global markets at Kotak Mahindra Bank.
Fund managers have also said Indian government bonds will continue to attract foreign flows even as a narrower-than-expected victory margin could prompt a shift in policy.
Traders will also await fresh supply via a weekly debt auction from the central government as it aims to raise 290 billion rupees ($3.47 billion), which includes 200 billion rupees of the benchmark paper.
Meanwhile, the 10-year U.S. yield stayed closer to the 4.30% mark ahead of Friday's highly anticipated government employment report for May.
The latest data has boosted expectations that the Federal Reserve will deliver two rate cuts of 25 basis points (bps) each in 2024. ($1 = 83.4675 Indian rupees) (Reporting by Dharamraj Dhutia; Editing by Sohini Goswami)
