Foreign investors are selling off Indian bonds at a rapid pace, resulting in the largest outflow since June. The attractiveness of India's fixed-income securities has diminished due to rising US Treasury yields.

In the past week alone, global funds have sold a net 49.6 billion rupees ($588 million) of Fully Accessible Route bonds. This is the largest weekly outflow since these bonds were added to JPMorgan Chase & Co.'s major emerging-market bond index.

Overall, foreign investors have offloaded a net 87.5 billion rupees of Indian debt this month. This is driven by the expectation of a narrowing interest-rate differential between the US and India. The surge in US Treasury yields following Donald Trump's election victory has led market participants to anticipate a need for the Federal Reserve to slow its easing cycle due to inflationary pressures from the President-elect's economic agenda.

Despite the Indian bond market outperforming its US and European counterparts in the past year, the spread between India and these global markets has tightened to historically low levels, according to Rajeev De Mello, a global macro portfolio manager at Gama Asset Management SA.