Domestic bond yields could face upward pressure if the global monetary easing cycle stalls or reverses in response to persistent oil price shocks amid fragile conditions in West Asia, cautioned the RBI in its latest annual report.However, the government’s commitment to fiscal consolidation, along with the liquidity injection measures by the Reserve Bank, is expected to contain the upward pressure on yields.Elevated sovereign yields may also exert pressure on financial institutions’ investment portfolios, warned the report.Nonetheless, on balance, supported by sound fundamentals and healthy balance sheets, the domestic financial system has sufficient buffers to withstand adverse shocks.The report noted that the Government Securities (G-sec) yield curve steepened during the year (FY26).“Short-term yields softened on the back of monetary policy easing, the Reserve Bank’s liquidity injection measures and sovereign credit rating upgrade by an international rating agency; while medium-term and long-term yields hardened tracking movement of sovereign yields in other countries amid intensification of geopolitical risks. Overall, the 10-year yield hardened by 49 basis points in 2025-26,” the report said.The report observed that G-sec yields hardened since Q2 (July-September 2026) amidst uncertainty over the India-US trade deal, receding expectations of further monetary easing, demand-supply mismatches and geopolitical tensions.“During Q4 (January-March):2025-26, yields traded with a hardening bias amidst higher-than-expected gross market borrowings announced in the Union Budget 2026-27 and a sharp increase in crude oil prices following the escalation of the West Asia conflict.“On the final trading session of 2025-26, the 10-year generic G-sec yield crossed the 7 per cent mark for the first time since July 2024,” it said.Published on May 29, 2026