The 30-year bond yield also eased after reaching 2.518% on Thursday, its highest since August 2019. It was last less than a basis point lower at 2.4685%.
"Ultimately, what we're seeing now is a great deal of tension between market prices that embed several rate hikes before the end of 2023 and the Fed's forecast that doesn't expect liftoff until 2024," he said.
The blue-chip NSE Nifty 50 index ended up 1.28% at 14,744 and the benchmark S&P BSE Sensex rose 1.3% to 49,858.24. Earlier in the session, the Sensex and Nifty shed up to 1.43% and 1.28%, respectively.
Sentiments in the short-term, however, are weak due to a rise in COVID-19 cases and volatility in bond yields, Sharma said.
Gains in the greenback were more pronounced against low-yielding currencies such as the euro and the British pound while high-yielding currencies like the Australian dollar fared relatively better.
Monday's trading theme is a continuation of the pattern we have seen in March and we have to see what the Fed does later this week to see if the rise in bond yields and dollar strength versus low yielders can carry on.
Domestic debt markets is where we're more concerned about the impact of rising yields.
Several emerging markets already had very significant fiscal weaknesses before the COVID-19 pandemic and we expect their debt ratios to rise over the next years and if the cost of funding is going up we could see even worse debt trajectories in Brazil and South Africa.
The Bank of Canada on Wednesday left its key overnight interest rate unchanged at 0.25%, as expected, and said the Canadian economy was proving to be more resilient than anticipated to the second COVID wave and containment measures.