The government bond yields ended higher on Thursday, as traders trimmed bond holdings to make room for Friday's debt sale.
The benchmark 10-year government bond yield ended at 7.2146%. The yield fell 10 basis points in last three sessions and ended at 7.1893% on Tuesday. The new 10-year 7.26% 2032 bond yield ended at 7.1859%, after ending at 7.1757% on Tuesday.
The financial markets were closed on Wednesday.
"Market has been ignoring the negative news like rising U.S. yields or inflation worries and has reacted to positives," said Rajeev Pawar, head of treasury at Ujjivan Small Finance Bank.
"With debt auction due tomorrow, traders were light today, and I expect bond yields to remain supported around 7.18%-7.20% levels currently," Mr Pawar added.
New Delhi is scheduled to raise at least 330 billion rupees ($4.15 billion) through sale of bonds, and the auction includes 130 billion rupees of 7.26% 2032 note, which is expected to replace the existing benchmark paper soon.
The 10-year U.S. yield rose above 3.20% on Thursday, as investors continue to expect aggressive rate hikes from the US Federal Reserve in coming months.
Meanwhile, the benchmark Brent crude contract came off by nearly $10 per barrel in last three trading sessions to $95 per barrel, easing concerns over inflation.
Intraday, bonds were little changed after data showed India's economy grew 13.5% in the April-to-June quarter, below a 15.2% forecast by economists in a Reuters poll.
Most of the market participants do not expect softer growth reading to alter the Reserve Bank of India's rate hike trajectory to contain inflation.
Nomura expects the RBI to hike repo rate by 35 basis points and 25 bps in September and December, while Barclays expects 25 bps move in both policy reviews.
The RBI had raised repo rate by 50 basis points in August to 5.40%, which took its aggregate hikes to 140 bps in May-August. The next policy decision is due on Sep. 30.