New Delhi: Foreign investors are withdrawing capital from Indian government bonds and moving to developed countries for safer, comparable returns as global interest rates rise. The narrowed yield differential – the smaller gap between the interest rates offered in India and developed nations – has reduced the incentive for emerging market investment.Bloomberg’s decision to delay including Indian local debt into its emerging market bond index also was a major setback for late-July inflows, said a report in the Economic Times.There was an unprecedent spike in inflows to bonds for three months, with purchases worth Rs 49,355 crore made in June and July.Foreign investors bought a record $3 billion of Indian government bonds in June, their highest monthly inflow, Reuters reported. This was after India exempted foreign investors from 12.5% long-term capital gains tax and scrapped the 20% withholding tax on bond interest.However, since August, foreign portfolio investors (FPI) have sold government bonds worth Rs 987 crore.Last week, the US ten-year treasury yield climbed to 4.81%, its highest level since November 2023. German ten-year bond yields, a key metric for euro zone borrowing, also rose to the highest level since 2011.The report said market experts expect the amount of money foreign investors bring into Indian bonds to roughly equal the amount they take out – without massive buying to push prices up or selling that can crash prices. Any buying that does emerge is likely to come from global investors with dedicated India or broader Asia mandates, economists told the publication.High US interest rates as well as expensive crude oil make Indian bonds less attractive at the moment, while the rupee has stabilised after sinking to historic lows in the current financial year.