The Great Bond Retreat: Foreign Investors Flee Amid Middle East Tensions

Foreign portfolio investors have withdrawn Rs 17,689 crore from FAR government securities since Middle East conflicts began. This move indicates increased risk aversion linked to rising inflation due to higher crude oil prices. Consequently, Indian bond yields, especially the 10-year benchmark, have seen significant upward trends.

In a shifting financial landscape, foreign portfolio investors have divested Rs 17,689 crore from Fully Accessible Route (FAR) government securities. This massive pullout underscores the increasing risk aversion seen globally, particularly as geopolitical tensions in the Middle East trigger inflationary fears fueled by soaring crude oil prices.

As reported by the Clearing Corporation of India (CCIL), investments from overseas entities in these government channels dropped dramatically from Rs 3,31,007.648 crore on February 27 to Rs 3,13,318.661 crore by April 1. Experts attribute this trend to a marked rise in domestic bond yields during this period.

The repercussions were felt heavily in India, where the yield on the 10-year benchmark bond surged, crossing the 7 percent threshold for the first time in over 20 months. Market analysts point out that such heightened yields diminish the attractiveness of current bond holdings, prompting foreign investors to reduce stakes in interest rate-sensitive sectors.

(With inputs from agencies.)