MUMBAI - Indian government bond yields ended largely unchanged on Wednesday, as traders consolidated their positions after the recent drop, with the benchmark bond yield staying comfortably below the key 7% mark.

The 10-year benchmark 7.26% 2033 bond yield ended at 6.9661%, compared with its close of 6.9640% in the previous session.

The yield has eased 16 basis points so far in May, on bets of policy pivot by the U.S. and Indian central banks.

"Bonds are expected to see some consolidation in the 6.90%-6.95% zone as the market has already aggressively priced in rate cuts," said Gopal Tripathi, head of treasury and capital markets at Jana Small Finance Bank.

Yields have eased since last week when data showed India's headline retail inflation fell to an 18-month low of 4.7% in April, staying within the central bank's tolerance limit for the second consecutive month.

Most market participants expect a further drop in May, with some economists predicting a reading nearer to 4%, a level last seen in January 2021.

The Reserve Bank of India (RBI) targets inflation at 4%, the midpoint of its tolerance band. The RBI maintained the status quo on interest rates in April, surprising the market that was expecting a 25-basis-points hike.

The RBI's next policy decision is due on June 8, with the Federal Reserve's decision six days later.

Apart from easing inflation, market participants said, talks that Russian firms are investing in government bonds are helping the current rally.

Russian banks and companies who have trade surpluses with Indian lenders are using those rupee funds to invest in domestic government debt, Sunil Mehta, the head of the Indian Banks' Association (IBA) said on Tuesday.

Meanwhile, traders will shift focus to the weekly debt auction on Friday, at which New Delhi is aiming to raise 330 billion rupees ($4.04 billion) by selling bonds, including 140 billion rupees of the benchmark paper. ($1 = 81.7800 Indian rupees)

(Reporting by Dharamraj Dhutia; Editing by Savio D'Souza)