Disappointing industrial output data for October also strengthened hopes that the central bank will shift its focus on growth when it meets to review policy on Friday.
At 12:10 p.m. (0640 GMT), the benchmark 10-year bond yield was down 2 basis points at 8.43 percent. It earlier touched 8.41 percent, its lowest since Sept. 29.
The yield is expected to move in an 8.35 to 8.45 percent range during the day.
Total volumes on the central bank's electronic trading platform were at 125 billion rupees ($2.3 billion), about double the normal volume in the first three hours of trade.
"The market is waiting out for an OMO (open market operations) announcement. If it comes, yields will go down further, else some consolidation can be seen," said Manish Wadhawan, director and head-interest rates at HSBC.
The central bank has bought back government bonds worth 243.11 billion rupees via open market operations over the past three weeks to help ease tight cash conditions.
Borrowings by banks at the central bank's daily repo auctions stand at around 800 billion rupees, above the Reserve Bank of India's comfort level.
"The Reserve Bank of India will shift its focus from inflation to growth after the dismal IIP number. We forecast 100 basis points of repo rate cuts in 2012," a dealer with a foreign bank said.
The RBI has raised interest rates 13 times since early 2010, a policy tightening that has hit growth but done little to counter near double-digit inflation.
The market will closely watch monthly inflation data due on Wednesday to gauge the RBI's stance on Friday and the instruments it could use to keep growth from derailing, traders said.
Headline inflation for November is expected to ease to 9.04 percent from 9.73 percent the month before, according to a Reuters poll.
Worries over the euro zone crisis and slowing growth at home also helped appetite for safe-haven government debt.
Asian stocks sank the euro was near a two-month low as investors took fright at the prospect of mass euro zone sovereign ratings downgrades after the outcome of a "last chance" European Union summit failed to convince markets.
The benchmark five-year swap at 6.95 percent from 7.03 percent and the one-year rate at 7.69 percent from 7.76 percent previously.