Mumbai: Net sales of Indian bonds by overseas investors surged the highest in April since the inclusion of local debt on global bond indices, reflecting the undiminished allure of higher returns in the US, and the impact of escalating tensions with Pakistan toward the latter half of the month, market experts said.

Reversing four months of inflows, April saw a net ₹13,359 crore of outflow from the index-eligible fully accessible route (FAR) government securities, the highest monthly exit since India’s inclusion in the JP Morgan EM index in July 2024, CCIL data showed. Passive investments often closely track the weightings on global gauges.

“In the first half of this month, dollar yields were volatile amid speculation about the potential dismissal of the Fed chair and retaliatory tariffs, leading to the expectations that dollar yields could skyrocket,” said Nitin Agarwal, head of trading at ANZ Banking Group. “The second half of the month has been dominated by escalating geopolitical tensions, prompting investors to go bearish on Indian bonds.”
Local bonds are now part of three global indices-the JP Morgan emerging market index, the FTSE Russell index, and the Bloomberg Emerging Market local currency government index.

Flows had turned negative in October and November last year, before picking up again.

The net cumulative flow under the FAR route was ₹8,919 crore from July 2024 to April 2025. Over the same period, the investment in equities via the FII route saw outflows worth ₹1,15,125 crore, according to NSDL data.Around mid-April, yields on the 10-year US treasury bill shot up to 4.5%, within just a few days, from 3.9% on April 10, while the 30-year yield spiked at almost 5%, London Stock Exchange Group data showed.In contrast, Indian bond yields have trended lower despite geopolitical concerns, narrowing the difference with the US yields.

The benchmark 10-year yield has dropped to 6.36% as of April 30, from 6.53% on April 2, CCIL data showed.

Stability Hunt
“At the end of the day, emerging markets like India thrive in periods of stability, which has not been the case lately,” Agarwal said.

Global funds are underweight on Indian bonds even as Indian debt reached their full 10% weight in the JP Morgan EM index in April.

“In terms of the weights on the JP Morgan index, we are at 10%. But there are some funds who are not at that 10% weight, partly because of operational reasons and partly because they may be slow to build their India positions,” saif Nathan Sribalasundaram, Asia EM rates strategist, Nomura.

Along with the requirement of margins to be posted and extension of trading hours, the fund registration also remains a cumbersome process, Nick Gendron, global head, fixed income index product, Bloomberg Index Services had told ET in January.