Traders said they were also waiting for a meeting between the finance ministry and central bank officials on Friday to finalise the government's 4.17 trillion rupees ($93.3 billion) gross market borrowing schedule for the first half of 2011/12.
At 10:55 a.m. (0525 GMT), the yield on the most traded 8.13 percent, 2022 bond and the second most traded 8.08 percent, 2022 bond were both down 2 basis points each, at 8.06 percent and 8.08 percent, respectively.
Banks have to invest at least 24 percent of their deposits in government and other approved securities and their investments are mark-to-market at the end of each quarter.
The less liquid benchmark 10-year bond was down 1 basis point at 8 percent.
Volumes were low at 24 billion rupees on the central bank's trading platform, compared with 40 billion rupees usually around the same time.
The benchmark five-year swap rate eased three basis points to 7.99 percent and the one-year swap rate was down one basis point at 7.46 percent.
"I think bonds will stay biddish till the new borrowing calendar," said a senior trader at a foreign bank. "If the calendar is favourable, then for March 31 mark-to-market valuation reasons also yields will keep moving lower."
Yes Bank said in a recent note that it expects the government to borrow 2.7 trillion rupees in the first half of the fiscal year beginning April 1, which works out to an average gross borrowing of 450 billion a month.
Dealers said the weekly inflation data would be crucial after the central bank last week increased key rates, and said it was likely to maintain its anti-inflationary bias. The central bank also raised its forecast for headline inflation at the end of March to 8 percent, from its earlier 7 percent.
"It will be interesting to see whether 1 year OIS crosses 7.50 percent as it is an important psychological level," said a dealer at another foreign bank.
"We will wait till inflation for any further moves."