New Delhi will borrow 2.2 trillion rupees ($44.5 billion) between October and March, the government said last week, significantly higher than the budgeted 1.67 trillion rupees.

The big increase is to make up for a shortfall in a government scheme for small savers, but the jump in bond yields could push up the cost of borrowings.

The benchmark 10-year bond yield climbed to 8.5224 percent, it’s highest since Oct. 1, 2008. By 12:08 p.m. (0638 GMT), it was trading at 8.50 percent, up 5 basis points from the previous close.

The yield has jumped 15 bps since the government announced the higher borrowing schedule last Thursday.

Total volume on the central bank's electronic trading platform was 57.85 billion rupees, higher than an average 45 to 50 billion rupees in the first three hours of trade.

Pradeep Madhav, managing director of STCI Primary Dealership, said traders were trimming positions on worries excess supplies could push up yields further.

The government is scheduled to sell 150 billion rupees of bonds this week, according to the auction calendar.

"I think with the supply starting and the liquidity tight the yields are likely to be in this vicinity. They will trade in the range of 8.45 to 8.55 percent," Madhav said.

The government had in the February budget pencilled in gross market borrowing of 4.17 trillion rupees for the 2011/12 fiscal year, to help bridge a fiscal deficit that was forecast at 4.6 percent of the GDP.

It completed borrowing of 2.5 trillion rupees between April and September, and the full-year borrowing now stands at 4.7 trillion rupees.

"Auction supply is there and inflation is also high so RBI may hike more," said Sandeep Bagla, senior vice president with ICICI Securities Primary Dealershi, referring to the Reserve Bank of India that has raised interest rates 12 times over 18 months.

India's food and fuel inflation accelerated in mid September, indicating persistently high inflationary pressures in the economy which may prompt the central bank to continue to tighten rates.