A three-day weekend ahead and speculation the central bank may raise rates more than expected to douse price pressures also kept most traders on the sidelines.
At 10:40 a.m. (0510 GMT), the most-traded 8.08 percent 2022 bond and the 10-year 7.80 percent 2021 bond were both steady at 8.26 percent and 8.04 percent, respectively.
Total volume on the central bank's electronic trading platform was a meagre 2.35 billion rupees ($53 million), compared with the usual 15-20 billion rupees, traded in the first hour and half.
"The mood is bearish, so expect the uptick in yields to continue. The 10-year paper may trade in a 8.04 to 8.10 percent band," said Chetan Shenoy, an associate vice president with Development Credit Bank.
"Auction of another round of cash management bills, the 120 billion rupees bond auction, high oil prices and inflation concerns are all weighing on the market," he said.
Traders said the cut-offs, due after 0900 GMT, at the 120-billion-rupee bond auction will be watched for direction.
The central bank is also selling 60 billion rupees of 49-day cash management bills.
Brent crude climbed above $124 a barrel on Thursday as US crude inventories fell unexpectedly last week and a sharply weaker dollar triggered a rush into riskier assets.
The benchmark five-year swap rate and the one-year rate both rose 3 basis points each, to 7.29 percent and 7.80 percent respectively.
"The auction should be fully subscribed but it's just one week for the central bank policy, so not much enthusiasm in the market as such," a senior dealer with a private bank said referring to the bond auction.
He said a three-day weekend with the market closed for Good Friday also weighed on the market.
Traders said absence of a bond sale next week should support demand for bonds at the auction, but aggressive bidding was unlikely due to possibility of rate hikes to tame prices.
Data released last Friday showed annual inflation accelerated in March to nearly 9 percent, far above forecasts, adding pressure on the central bank to take bolder action.
The central bank will announce its annual monetary policy on May 3 where it is widely expected to raise key rates by 25 basis points but high inflation has fuelled talk of the possibility of a 50 basis points increase.
The market is betting the central bank will likely raise key rates by another 75 basis points by end-2011, up from expectations for 50 basis points ahead of the inflation data.
US Treasury prices slipped on Wednesday, as interest rate fears and worries that policymakers will be too slow to raise the debt ceiling may be overstated.