MUMBAI, June 27 (Reuters) -
Indian government bond yields are expected to inch higher in early trading on Thursday, mirroring U.S. yields, while focus was also on foreign flows ahead of domestic debt's inclusion in a global index on Friday.
The benchmark 10-year yield is likely to move in a 6.97%-7.03% range, following its previous close of 7.0000%, a trader with a primary dealership said.
"The Treasury yields have finally broken on the upside after remaining in a narrow range for last week, so we should also see the local benchmark moving above the 7% handle today. Still, if we see any major flows, yields may ease later," the trader said.
U.S. yields rose, after inflation in some of the other countries picked up, with investors fearing a similar trend in the world's largest economy.
Meanwhile, bets of another intervention from the Japanese central bank after the yen dropped to its lowest level since 1986 against the dollar, also lifted U.S. yields.
On investors' radar is a key inflation gauge, due Friday, to assess whether the Federal Reserve will be able to deliver a rate cut in September.
The major focus remains on the inclusion of Indian bonds in JPMorgan's widely tracked emerging market debt index.
Inflows into bonds under the fully accessible route, have risen to more than $10.50 billion since the inclusion's announcement last September.
The inclusion is expected to draw a combined $11 billion away from South Africa, Poland and Thailand, strategists led by Michael Harrison said in a note, adding 32%-40% of expected $20-25 billion of flows have already played out.
This comes after Morgan Stanley said, investors are bullish on India and have allocated 3.6% of holdings to the country's bonds as of end-May.
KEY INDICATORS: ** Brent crude futures were 0.4% lower at $85.95 per barrel, after rising 0.3% in previous session ** Ten-year U.S. Treasury yield at 4.3392%, two-year yield at 4.7555% (Reporting by Dharamraj Dhutia Editing by Eileen Soreng)
