(Updates at market close)

By Khushi Malhotra

MUMBAI, June 17 (Reuters) - A relief rally in Indian

government bonds stalled on Wednesday as oil prices consolidated

and the upcoming U.S. Federal Reserve policy verdict kept risk

appetite in check.

The yield on the benchmark 6.94% 2036 note

settled at 6.8626%, versus 6.8651% on Tuesday. The 10-year yield

has eased 8 basis points in a week and hovered at a 12-week low.

Brent crude futures fell below $80 a barrel for the first

time since early March, but edged higher in Asian trade at

$79.28 per barrel.

U.S President Donald Trump said on Wednesday that the

memorandum of understanding on Iran was not final, and that he

could resume a bombing campaign if he did not like it, making

traders cautious.

The interim deal would end the Iran war, lead to reopening

of the Strait of Hormuz and the US removing its naval blockade

of Iran.

India imports about 90% of its oil needs and is highly

vulnerable to oil swings.

STCI Primary Dealership said in a note that prolonged supply

disruptions could prompt rate hikes from Q3 FY2026-27, depending

on macro conditions.

Traders now await the Fed decision under new chair Kevin

Warsh. While no rate move is expected, hawkish guidance could

widen U.S.-India differentials, dampening foreign investment in

Indian bonds.

Indian policymakers have announced a slew of measures to

boost foreign inflows into Indian debt and equities.

Consequently, overseas investors have poured more than $2

billion into domestic bonds over the past eight sessions,

already surpassing the year-to-date inflows recorded before the

measures were announced.

RATES

India's overnight index swap rates continued to ease,

although at a slower pace.

The one-year swap rate, the two-year rate

and the five-year rate each

pared 1 basis point to 5.88%, 6.04% and 6.2950% respectively.