Later, the yields rally lost steam and the bond yield fell to 7.931% at 12:26 pm. The rise in yields comes two days after the monetary policy committee raised repo and the reverse repo rate each by 0.25%. The 10-year bond yield closed at 7.917% rising 1.06% on June 6, the day when the central bank raised key rates.

Earlier, the Sensex rose over 200 points in opening trade but pared most gains later in the day.  Kotak Mahindra Bank (3.87%), ITC (2.03%) and Asian Paints (1.80%) were the top Sensex gainers.

China hit back in the trade war announcing plans for reciprocal tariffs on $3 billion imports from the US, including products from steel to pork. China also plans to take legal action against the US under the World Trade Organization framework. 

Rising yields mean bond fund portfolios will be under pressure for a considerable time period.

Often FIIs or FPIs have been blamed for the sudden crash in Indian markets when they have pulled out money citing greater returns for their investments outside the country. But it's the DIIs which have mostly cushioned the impact of FII selling by investing into equity and debt and minimising the losses to the financial Indian market.

Benchmark Sensex succumbed to fag- end profit-booking to end 144 points lower on Wednesday after banking stocks tumbled on RBI's new norms for recognising stressed assets.

Stock market investors' wealth rose by Rs 69.92 lakh crores since the BJP came into power in May 2014.

The sharp increase in inflows comes after an outflow of over Rs 3,500 crore by foreign portfolio investors (FPIs) from the capital markets in December, data compiled by depositories shows.