Investors rein in India bond optimism as crude oil prices surge

Investors are holding back from going all in on Indian sovereign bonds even amid easing debt supply as rising crude prices threaten to reignite inflation concerns.

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"The second half of the year is generally good for bonds," Devang Shah, co-head of fixed income at Axis Mutual Fund Co. said citing India's typically smaller government debt issuance size in the latter half of the fiscal year. But rising crude prices are a "prominent risk," he added.

He sees India's benchmark 10-year yield climbing to 7.25% to 7.35% if oil prices jump to $92 to $95 per barrel. The benchmark yield climbed three basis points to 7.23% on Monday.