By Dharamraj Dhutia

MUMBAI, Oct 6 (Reuters) - Indian government bonds rose in early trade on Monday, led by ultra-long maturities after states announced lower-than-expected borrowing for the current quarter, boosting sentiment.

The yield on the 10-year benchmark note IN063335G=CC was at 6.5029% as of 9:50a.m. IST, after ending at 6.5114% on Friday. Other bond yields were down 3-4 basis points.

Bond yields move inversely to prices.

"State debt supply was a major concern for the market, and with that sorted out at least for the time being, the factors that could put an upward pressure on bond yields are limited," trader with a state-run bank said.

Indian states will borrow 2.82 trillion rupees ($31.78 billion) through the sale of bonds in the October-December quarter, while traders were expecting the borrowing to be around 3.25 trillion rupees, with some fearing higher numbers.

This comes after the centre reduced the share of ultra-long bonds in its borrowing plan for the fiscal second half.

Demand-supply scenario to be further supported after at least four major state-owned banks increased their internal limits for investing in these securities, following discussions with the Reserve Bank of India last month, five treasury officials told Reuters.

Bond bulls are hopeful of monetary easing after the RBI last week kept its policy rate unchanged as expected, but said that low inflation had opened up policy space for supporting growth.

Most market participants now expect a rate cut in December, with many also eyeing another such action in February. The RBI has cut rates by 100 basis points in 2025 so far.

RATES

India's overnight index swaps $(OIS)$ were barley changed in thin early deals.

The one-year OIS rate INR1YMIBROIS=CC was note yet traded, while the two-year OIS rate INR2YMIBROIS=CC was at 5.40%. The five-year OIS rate INR5YMIBROIS=CC was 5.67%.

($1 = 88.7450 Indian rupees)

(Reporting by Dharamraj Dhutia; Editing by Nivedita Bhattacharjee)

((Dharamraj.dhutia@tr.com))