Reports said the government could raise the limit to which FIIs can buy government debt by $5 billion to $25 billion, while reducing the portion that long-term investors can buy to $5 billion from $10 billion. The tweaks would keep the overall FII limit for government debt investments at $30 billion.
However, trading could turn volatile for the 10-year bond as dealers widely expect India will soon announce the sale of a new 10-year benchmark.
The sentiment for bonds has improved after the talk of a tweak in FII debt limits. If RBI announces a new benchmark, the paper should attract strong investments," said Krishnamoorthy Harihar, head-global markets, FirstRand Bank in Mumbai.
The Reserve Bank of India is expected to announce the composition of Friday's R140,00 crore weekly bond sale later on Monday.
The 10-year benchmark bond yield ended at 8.7%, down 7 bps from the previous close.