Total volume on the central bank's electronic trading platform was a low 7.75 billion rupees ($171 million), less than half the 15-20 billion usually traded in the first 75 minutes.
"We have the auctions, so expect the market to be rangebound. 10-year should hold in a 8.37 to 8.42 percent band, unless auction results are bearish, which can then take the 10-year to 8.45 percent or so," said Gaurav Gupta, manager fixed income at Corporation Bank.
The government is selling 40 billion rupees of 7.83 percent 2018 bonds, 50 billion rupees of 7.80 percent 2021 bonds and 30 billion rupees of 8.30 percent 2040 bonds.
The results of the auction due after 0900 GMT will set the tone for the market.
"The downside for yields is very limited as the market is also expecting a diesel price hike, which is likely to keep sentiment bearish," Gupta said.
A panel of ministers may meet on June 9 to discuss raising prices of diesel, kerosene and cooking gas, an oil ministry official told reporters on Thursday.
Traders expect the benchmark bond to be sold around 8.44-8.45 percent, which could push the yields higher, post the auction.
The benchmark five-year swap rate was steady at 8.14 percent while the one-year rate was up 3 bps at 8.14 percent.
"There are concerns of liquidity tightening due to advance tax outflows around mid-June which is pushing the short-end up," a senior dealer with a foreign bank said.
Traders said a drop in U.S yields was likely to prevent any sharp upside to yields locally.
US Treasuries benchmark yields fell to new six-month lows on Thursday as weaker-than-expected economic data and renewed concerns over Greece's debt added to demand for safe-haven debt.
The benchmark 10-year US notes were yielding 3.06 percent in Asia on Friday, compared to 3.07 percent in late New York trade.
Traders would also watch global oil prices for its impact on domestic inflation. India imports nearly 70 percent of its total oil requirements.
Brent crude rose on Friday, hovering above $115 a barrel, as a softer dollar and persistent Middle East tensions tempered demand worries triggered by euro zone debt concerns and weak US economic data.
Copyright Reuters, 2011