The 3-month yield rose 9 basis points to 10.95 percent, the 6-month yield rose 17 basis points to 12.29 percent and the 12-month yield rose one basis points to 12.67 percent.
The debt office, which is a unit of the Central Bank said 15 billion rupees of bills were offered to the auction and only 10 billion rupees of bids were accepted.
If bids are not accepted the central bank can buy them or offer 'on tap' later.
Analysts say if the Central Bank buys bill it creates new demand in the economy and puts pressure on the balance of payments.
Offering on taps also distorts secondary market trading preventing the establishment of a true market rate, which can help draw more money to bill markets and maintain macro-economic stability.
When rates fell two weeks ago amid excess liquidity in interbank markets analysts had urged the central bank to sell down its bill stock and mop up liquidity to prevent renewed pressure on a dollar peg again from unsterilized purchases of foreign exchange.
But even a small rise in interest rates may help the economy stabilize, analysts say.
If interest rates are allowed to float freely, especially in the short term markets, the exchange rate can be kept stable.
Analysts say while the central bank has been quick to sterilize foreign exchange sales with outright purchases of bills, which weakens the dollar peg, it has been less willing to sell bills outright to withdraw the liquidity to strengthen the peg when the opportunity arose.
Bill rate are however above the reverse repo policy rate now.