The new benchmark 10-year bond yield was 1 basis point (bp) lower on the day at 8.80 percent, after moving in a tight 8.79-8.80 band.

Total volume on the central bank's electronic trading platform was a low 16.40 billion rupees ($314 million) compared with the usual 45 billion to 50 billion rupees dealt in the first three hours of trade.

"There is risk-aversion in play, with the market taking cues from US yields, and the bond buyback will be keenly watched," said Roy Paul, deputy general manager of treasury at Federal Bank in Mumbai.

The old 10-year benchmark bond, the 7.80 percent 2021 , 7.99 percent 2017 bond, 7.83 percent 2018 bond and the 8.13 percent 2022 bond will be bought back by the Reserve Bank of India via open market operations (OMOs), the results of which are due after 0900 GMT.

However, traders said supply worries prevented a sharper fall in yields. The government will sell 130 billion rupees of debt on Friday.

"People are now waiting to see if there will be another buyback announcement for next week, because that will give a hint there could be a series of open market operations," a trader with a state-run bank said.

"In that case, there could be a further rally in bond prices. Otherwise, supply pressures will continue to be a negative," the trader added.

The euro fell to a six-week low against the yen on Thursday and Asian stocks were subdued after an unsuccessful German bond sale raised alarm that Europe's ever-worsening sovereign debt crisis is starting to affect even the continent's economic powerhouse.

US Treasury debt prices rose on Wednesday, pushing benchmark yields to the lowest in seven weeks as worries over the outcome of the euro zone debt crisis underpinned the safe-haven appeal of US government debt.

The benchmark five-year swap eased 1 bp to 7.30 percent on the day and the one-year rate was at 8.12 percent from 8.13 percent.