MUMBAI, June 26 (Reuters) - Indian government bonds continued to move sideways on Wednesday, with the benchmark yield staying below the 7% mark, as investors remain focused on foreign flows ahead of the inclusion of domestic bonds in the JPMorgan emerging market debt index.
The benchmark 10-year yield was at 6.9879% as of 10:00 a.m., following its previous close of 6.9858%.
"Flows would be the next key triggers and till the time we do not see heavy inflows, bonds should be in a narrow range," a trader with a private bank said.
Foreign inflows into Indian government bonds under the Fully Accessible Route, which will be included in JPMorgan's widely-tracked emerging market debt index this Friday, have crossed $1 billion so far in June, with the major focus on longer-duration papers.
Overall inflows into such bonds have risen to more than $10 billion since the announcement of the inclusion last September. Investors tracking the index are bullish on India and had allocated 3.6% of holdings to the country's bonds as of end-May, according to Morgan Stanley.
The inclusion is expected to draw a combined $11 billion away from South Africa, Poland and Thailand, analysts at JPMorgan said in a note on Tuesday, adding that index-related inflows suggest 32%-40% of the expected total inflows of $20-$25 billion have already played out.
Foreign banks have also stepped up purchases of bonds, especially those of longer maturities over the last few days.
Meanwhile, the 10-year U.S. yield was glued to the 4.25% mark, as investors awaited a crucial U.S. inflation print this week, a key driver for the Federal Reserve to decide on the rate easing path.
New Delhi will sell bonds worth 310 billion rupees ($3.72 billion) on Friday, including the benchmark paper. It will also auction Treasury bills worth 120 billion rupees later in the day. ($1 = 83.4450 Indian rupees) (Reporting by Dharamraj Dhutia Editing by Sonia Cheema)
