MUMBAI: Indian government bond yields rose on Thursday, as traders sought to secure recent gains, heading into the auction of a new 10-year note.

The benchmark 10-year government bond yield was at 7.2177% as of 0450 GMT. The yield dropped 11 basis points to 7.1825% on Wednesday in its biggest single-day fall in two months.

"Bonds were in an overbought zone as there were multiple positive factors yesterday, but focus now remains on the cutoff for the new 10-year note," a trader with a state-run bank said.

The central government will auction bonds worth 330 billion rupees ($4.14 billion) on Friday, including 130 billion rupees of the new 10-year note, which will replace the existing benchmark in coming weeks.

The 10-year bond is expected to see strong demand, with the cutoff yield likely lower by 5-7 basis points from existing benchmark, analysts said.

Meanwhile, Indian states will borrow 40 billion rupees through sale of bonds on Thursday.

On Wednesday, buying was supported by a fall in oil and comments from Goldman Sachs analysts Danny Suwanapruti and Santanu Sengupta after they pointed to India likely being included in global bond indexes in 2023, leading up to passive inflows of around $30 billion.

Brent crude futures were trading largely unchanged at $93.65 per barrel on Thursday, after declining to its lowest level in six months on Wednesday. India imports bulk of its crude oil requirement and falling oil prices could keep inflation in check.

India's retail inflation dipped to 6.71% in July, easing for the third month in a row, and missing the 6.78% forecast by economists in a Reuters poll. ($1 = 79.6700 Indian rupees)

(Reporting by Dharamraj Lalit Dhutia Editing by Dhanya Ann Thoppil)