INDIA BONDS-Indian bonds likely to gain as states trim debt supply, US Treasuries rally

By Khushi Malhotra

MUMBAI, Oct 13 (Reuters) - Indian government bonds are expected to rise in early deals on Monday, buoyed by lower-than-expected weekly state debt supply later this week and a surge in U.S. Treasuries.

The yield on the benchmark 10-year note IN063335G=CC is seen moving between 6.48% and 6.54%, a trader with a private bank said. It closed at 6.5370% on Friday.

Bond yields move inversely to prices.

Indian states are set to sell bonds worth 120 billion rupees ($1.35 billion) on Tuesday, which is lower than market expectations, traders said.

Also aiding sentiment is a drop in U.S. Treasury yields on Friday to multi-week lows as investors moved to a safe haven following President Donald Trump's threats to impose a "massive" increase in tariffs on Chinese imports.

Movement in U.S. sovereign debt yields had been in a holding pattern in recent days as a government shutdown, now in its tenth day, has halted the production of crucial economic indicators.

Domestically, traders are hoping the 10-year yield will fall below the stubborn 6.49% level in intraday trade or at least sustain these levels at close.

"Bond yields will test lows, with the benchmark bond yield revisiting at least 6.49% if not lower. The real test for the bulls would be a further break from that level," a trader with a private bank said.

RATES

India's overnight index swaps (OIS) are expected to fall in early trading, tracking a dip in U.S. Treasury yields.

The one-year OIS rate INR1YMIBROIS=CC closed at 5.44% on Friday, while the two-year rate INR2YMIBROIS=CC ended at 5.38%. The five-year rate INR5YMIBROIS=CC was at 5.6525%.

KEY INDICATORS:

** Benchmark Brent crude futures LCOc1 were up 1.64% at $63.76 per barrel, after falling 3.82% in the previous session

** Ten-year U.S. Treasury yield US10YT=RR at 4.0510%; two-year yield US2YT=RR at 3.5220%.

($1 = 88.7520 Indian rupees)