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Indian Bonds See Foreign Sell-off Amid Global Yield Surge
9 Sep
Summary
- Foreign investors sold Indian government bonds worth ₹987 crore since August.
- Rising global yields narrowed the differential with Indian interest rates.
- Bloomberg's decision to defer local debt inclusion impacted flows.
Foreign fund flows into Indian bonds have reversed since August, with investors selling ₹987 crore in government bonds. This outflow follows significant net purchases of ₹49,355 crore in June and July through the Fully Accessible Route. The reversal is largely driven by rising global yields, which have made developed market bonds more attractive and narrowed the differential with Indian rates.
The US 10-year treasury yield reached its highest level since November 2023, while Japanese and German bond yields also saw significant climbs. Compounding these pressures, Bloomberg Index Services deferred the inclusion of Indian local debt in its Global Aggregate Index late in July. This delay further deterred foreign portfolio investors.
Economists suggest that substantial inflows are unlikely unless global rates moderate. High crude prices and potential rate hikes also contribute to investor caution. Consequently, market participants anticipate a period of neutral flows, with any new buying likely coming from investors with specific India or Asia mandates.
