Indian government bond yields are expected to move largely unchanged in the early session on Friday as market participants await the Reserve Bank of India's monetary policy decision later in the day.

India's benchmark 10-year yield is likely to move in a 6.99 per cent-7.03 per cent range till the policy decision, following its previous close of 7.0112 per cent, a trader with a state-run bank said.

"Market has recovered in the last couple of days from Tuesday's sharp upswings in yields, and they are now waiting for the RBI policy decision, with the major focus on guidance on inflation as well as liquidity management," the trader said.

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.

However, a weakened mandate for Prime Minister Narendra Modi's party and alliance has raised concerns about a potentially slower pace of fiscal consolidation alongside increased welfare spending.

Still, foreign fund managers said Indian government bonds will continue to attract foreign flows even as a narrower-than-expected victory margin could prompt a shift in policy.

"The RBI policy is likely to be a non-event as far as interest rates are concerned, as there is unlikely to be a change in policy rates or the stance. Large foreign demand due to index inclusion and low net supply are positive factors for bonds," said Sandeep Bagla, CEO at Trust Mutual Fund.

Meanwhile, the 10-year U.S. yield stayed closer to the 4.30 per cent 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.

The odds of a rate cut in September have risen to 68 per cent, up from 51 per cent a week ago, according to the CME FedWatch tool.

Key Indicators
Brent crude futures 0.1 per cent% lower at $79.75 per barrel, after rising 1.9 per cent% in previous session
Ten-year U.S. Treasury yield at 4.2987 per cent%, two-year yield at 4.7386 per cent%
India to sell sovereign bonds worth 290 billion rupees ($3.48 billion)
RBI to set underwriting fees for 290 billion rupees of sovereign bond auction ($1 = 83.4380 Indian rupees)
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