Traders were also wary ahead of the central bank's policy review next week, which is likely to raise rates for the 13th time in 19 months because of high inflation.

By 10:50 a.m. (0520 GMT), the 10-year benchmark bond yield was at 8.83 percent, after touching 8.84 percent, its highest since Aug. 28, 2008. It had closed at 8.78 percent on Friday.

Traders expect the yield to move in a band of 8.80-8.85 percent.

Total volume on the central bank's electronic trading platform was lower at 21.95 billion rupees ($449 million), compared with the 30 billion to 40 billion rupees dealt usually in the first two hours of trade.

"Overall sentiment is bearish as expectation is tilting towards a rate hike," a senior fixed income dealer with a foreign bank said.

"Even the announcement of CMBs is hurting," he said, referring to the 48-day cash management bills, the government announced late on Friday for sale on Monday.

The bills are issued to cover short-term mismatches in government finances and the results are due after 0900 GMT.

The possibility of another rate rise when the Reserve Bank of India reviews policy on Oct. 25 has gained momentum after inflation barely budged in September, staying above 9 percent for the tenth straight month.

The benchmark five-year overnight indexed swap rate was up 5 basis points at 7.45 percent, while the one-year rate was up 4 bps at 8.20 percent.

"One-year rate can rise to 8.25 percent this week, with rate hike views getting more or less firm," another dealer with a foreign bank said.

Traders said higher US yields and global crude oil prices were also weighing.

US 10-year Treasuries slipped in Asia on Monday as equities rose on hopes that European policymakers will come up with convincing measures soon to ease the euro zone's debt crisis and recapitalise the region's banks.

Brent crude futures climbed towards $113 on Monday, extending the previous session's sharp gains.

Copyright Reuters, 2011