MUMBAI, June 27 (Reuters) - Indian government bond yields dipped on Thursday as the impact from rising U.S. yields was outweighed by bets of foreign inflows as the country's debt gets included in a global index.
The benchmark 10-year yield was at 6.9900%, as of 10:00 a.m. IST, following its previous close of 7.0000%.
India's debt is to be included in JPMorgan's widely tracked emerging market debt index from Friday, ahead of which foreign investors are snapping up bonds that will be added to the index.
"Foreign flows are bound to hit either today or tomorrow and hence we may not see benchmark bond yield remaining above the 7% handle for long," a trader with a state-run bank said.
U.S. yields rose after inflation in other countries picked up, with investors fearing a similar trend in the world's largest economy when it reports a key inflation gauge on Friday, seen as guide to whether the Federal Reserve will be able to deliver a rate cut in September.
The 10-year U.S. yield was just shy of the key technical level of 4.35%, a break of which could lead to a sharp rise, according to traders.
However, the immediate focus locally is on the index inclusion, which, since its announcement last September, has already attracted flows of more than more than $10.50 billion into bonds under the fully accessible route.
Foreigners have been choosing longer-duration bonds over the last few weeks, a shift in preference from their earlier purchases of shorter-duration papers.
Market participants have been expecting chunky inflows into bonds on Thursday and Friday. Foreign banks have also been on an aggressive buying spree and have net bought over $5 billion of bonds so far in June.
Still, JPMorgan strategists led by Michael Harrison have said 32%-40% of expected $20-25 billion of flows have already played out, while Morgan Stanley said, investors have allocated 3.6% of holdings to the country's bonds as of end of May. (Reporting by Dharamraj Dhutia; Editing by Savio D'Souza)
