Bond yields had spiked on Friday when oil minister Jaipal Reddy said the government had no immediate plans to raise fuel prices, casting doubt about the prospect of fiscal consolidation steps.

Reserve Bank of India officials have previously said fiscal reforms would be key before any potential cut in interest rates. The central bank next reviews policy on Sept. 17, and few analysts expect a monetary easing step then.

Ahead of that meeting, investors will closely eye July industrial output data due on Wednesday and August inflation due on Friday.

"Domestically, there is no auction this week and traders were light after the sell-off on Friday, so they have been covering," said Baljinder Singh, a trader with state-run Andhra Bank.

"If the factory data comes in negative, the rally may continue."

The benchmark 10-year bond yield fell 2 basis points at 8.18 percent.

India will skip its longer-dated debt auction this week as it typically does when quarterly corporate tax payments are due. The 5-year OIS rate fell from a two-month high hit on Friday. I t ended 2 basis points lower at 7.19 percent, while the 1-year rate ended 2 basis points down at 7.75 percent.