MUMBAI, April 15 (Reuters) - Indian government bond yields edged lower on Monday as oil prices eased, while market participants continued to track tensions in the Middle East.

The yield on the benchmark Indian 10-year was at 7.1671%, as of 10 a.m. IST, after previous closing at 7.1794%.

"Oil prices have stabilised today despite an escalation of the conflict in the Middle East over the weekend and that is helping the sentiment but further movement will be keenly watched," said Debendra Kumar Dash, senior vice president of treasury at AU Small Finance Bank.

"Market also took comfort from easing in U.S. yields on Friday and local inflation print."

Oil prices rose on Friday due to heightened tensions in the Middle East, which could risk disruptions to supply from the oil-producing region.

The prices, however, eased in early Asian trade on Monday, as traders dialled back risk premiums following Iran's attack on Israel late, which the Israeli government said caused limited damage.

Higher commodity prices could impact domestic retail inflation.

India's annual retail inflation rate eased in March to a five-month low of 4.85%, helped by a drop in fuel prices but economists say a rate cut by the central bank is still some monthsW away as food prices remain sticky.

Meanwhile, U.S. Treasury yields eased on Friday but remained around the key level of 4.50% as Middle East tensions spurred safe-haven buying. The U.S. yields were higher in Asian trade on Monday.

Market participants have readjusted their rate-cut expectations from the Federal Reserve after an elevated U.S. inflation reading last week.

Market bets on the Fed cutting its target rate in June fell to 27.1%, down from 53.2% a week earlier, according to the CME Group's FedWatch Tool. (Reporting by Bhakti Tambe; Editing by Sohini Goswami)