INDIA BONDS-India bonds likely to open flat as attention stays on oil, Fed decision

By Dharamraj Dhutia

MUMBAI, March 18 (Reuters) - Indian government bonds are expected to be little changed in early deals on Wednesday, as traders remain focused on oil prices while also awaiting the U.S. Federal Reserve's monetary policy decision later in the day.

The benchmark 6.48% 2035 bond yield IN064835G=CC will likely hover between 6.69% and 6.73%, a private bank trader said, after ending the previous session at 6.7143%. Bond yields move inversely to prices.

"We would be in for another shallow-volume trading session today, as people would not like to take heavy calls on either side ahead of a holiday, so bonds should be range-bound," the trader said.

Brent crude held near $102 per barrel on supply concerns, with the Strait of Hormuz remaining mostly shut and no end in sight for the Middle East war. The contract has surged more than 40% since the U.S.-Israeli war on Iran began as the conflict disrupted traffic through the strait.

Higher oil prices are negative for India, the world's third-largest crude importer, as they threaten to worsen domestic inflation and the current account deficit.

Meanwhile the 10-year U.S. Treasury yield stayed close to 4.20% ahead of the Fed's policy decision, in which the authority is widely expected to leave its benchmark overnight rate unchanged in the 3.50% to 3.75% range.

On the radar would be commentary from Fed members about how the officials assess the ongoing Mideast conflict's implications for interest rates and the broader economy.

RATES

India's overnight index swap (OIS) rates could trade in a narrow range, with bias tilted towards paying.

The one-year OIS rate INR1YMIBROIS=CC firmed to 5.8425%, while the two-year OIS rate INR2YMIBROIS=CC ended at 6.05%. The five-year swap rate INR5YMIBROIS=CC rose 4 bps to settle at 6.4275%.