Why did the 10-year yields shoot up sharply on Tuesday 15 June?

The 10-year bond yields are highly vulnerable to shifts in inflation and the spike in bond yields on Tuesday was after CPI inflation came in sharply higher by 200 bps at 6.30%. The 10-year benchmark bond yield bounced to 6.05% before closing at around 6.04% for the day. The RBI has been conducting G-SAPs to keep yields stable under 6%.

Bond traders are apprehensive that the combination of inflation spike, aggressive borrowing targets and a quicker recovery in growth could force RBI to act on rates. While the markets are not factoring in a rate hike right away, there is a strong apprehension that some liquidity curbs may come in sooner rather than later. That is what spiked bond yields.