Bonds also rose after the Reserve Bank of India refrained from cutting the cash reserve ratio, raising expectations the central bank will inject liquidity via bond purchases in open market operations.
However, swap rates rose, reflecting concerns about the how the absence of a CRR cut would impact the liquidity deficit in the banking system, where repo bids have risen to an over eight-month high.
"The lack of a CRR cut means that OMOs (open market operations) will continue, which is extremely supportive of bond prices. The text suggests that the January policy should see a repo rate cut, so it makes sense to continue to remain long bonds," said Arvind Chari, fixed income fund manager at Quantum Asset Management.
The benchmark bond yield was at 8.15 percent at 0615 GMT, after rising to 8.18 percent initially after the policy, but was still up 1 basis point over previous close.
India's short-end 1-year OIS rate was up 4 basis points at 7.66 percent while the benchmark 5-year OIS was 5 bps up at 7.15 percent.
Analysts had been hopeful the RBI would move towards cutting interest rates in the January-March quarter, in line with its previously stated guidance, after inflation in November hit a 10-month low.
However, the absence of a cut in the CRR came as a surprise to some analysts, although the central bank assured that it would manage liquidity conditions to support growth.