Why Are Foreign Investors Pulling Money from Indian Bonds?

After 4 months of steady investments, Foreign Portfolio Investors (FPIs) are now selling off Indian government bonds — withdrawing $2.27 billion in April, the biggest outflow since May 2020. What’s happening? Indian bond yields are falling (from 6.6% to 6.33%). US bond yields are rising (from 3.99% to 4.35%). This narrows the gap in returns (called the yield spread) between Indian and US bonds to just 2% — the smallest since 2004. Why does that matter? Foreign investors invest where they get better returns for the risk. With the US now offering higher yields and being seen as safer, FPIs are shifting their money back to the US. What’s driving this? Global inflation worries, No near-term US rate cuts expected, Market volatility and trade tension fears. But India still looks good! Inflation is cooling off, Interest rate cuts may come soon, Rupee is stronger, Liquidity and borrowing are healthy. Many believe FPIs are just taking profits after a good run. Global trends are pulling money out of Indian bonds — not because India is weak, but because the US is looking more attractive right now.