But fixed income analysts said the upside would be capped by a lingering wariness of the central bank after a top monetary official said last week that the market had probably been running up on expectations that were "not rational."

Bond yields rose last week after the central bank resorted to both verbal intervention and a slew of measures to drain surplus cash that had been fuelling a rally pegged on hopes of a monetary easing at its policy review meeting on November 3.

The yield on the 10-year benchmark bond rose 12 basis points during the week to 5.0926 per cent, ending well off the record low of 4.9442 per cent struck on October 16.

"The fact that the central bank did not accept all the bids at its open market bond sale last week has been viewed positively as punishment being over for now," said Sanjeet Singh, analyst at ICICI Securities Ltd.

"So the start of week should see sentiment positive and yields should dip about two to three basis points before caution comes in and the market gets wary again of the RBI (Reserve Bank of India)."

Among the measures was a bond sale by the central bank on Thursday, although it ended up draining only 18.96 billion rupees from the banking system, instead of the 35 billion rupees originally intended.

Analysts said bonds would now broadly move into a "wait and watch" phase, with traders eyeing the outcome of a small, but key, central bank bond sale for 10 billion rupees on Monday for possible yield signals.

"Though Monday's sale is small by usual standards, the fact that RBI officials said it was intended as a yield signal rather than for draining liquidity should see its cut-off being watched closely for direction," said SP Prabhu, analyst at IDBI Capital Markets.