India's benchmark 10-year bond yield briefly jumped to 7.562%, its highest since March 14, 2019, before trading at 7.50% after the policy decision. The rupee was at 77.6925 against the dollar.
The monetary policy committee (MPC) raised the key lending rate or the repo rate by 50 basis points (bps) to 4.90%.
The Standing Deposit Facility rate and the Marginal Standing Facility Rate were adjusted higher by the same quantum to 4.65% and 5.15%, respectively.
India's bond yields have risen at the fastest pace since the 2008 global financial crisis on the back of high inflation and higher-than-budgeted government borrowings.
So far in 2022, yields on the benchmark 10-year bond have climbed 107 basis points despite relatively dovish central bank commentaries until the early-May unscheduled increase in policy rates, ET reported.
Yields had climbed 128 basis points until early June in 2009, showed Bloomberg data compiled by ETIG, after the Lehman Brothers bankruptcy plunged the global economy into a sinkhole and marked the start of the greatest recession in world history since the 1929 crisis.
The five-year sovereign gauge, meanwhile, climbed 154 basis points since the beginning of the year, marking the sharpest rise in more than two decades.
Experts also believe that yield differential along with the curve point to persistent increases in both rates and commodity prices. "An anomaly between shorter duration and long-term yields reflects market expectations of sustained rate hikes amid a commodity super cycle," Sabnavis said.
Fu Saudi Arabia raised prices sharply for its crude sales in July despite the OPEC+ deal last week to accelerate its output increases over the next two months.
In the US, the latest batch of data on the labour market reinforced expectations for aggressive monetary policy tightening from the Federal Reserve.