A hawkish RBI and the Greece crisis have taken the sheen off the government bonds for the foreign institutional investors. This was evident at the auction of investment limits in government bonds to FIIs on Monday where premiums were tempered.
FIIs paid 44.10 bps to get investment limits worth R2,451 crore ($380 million) in the government bonds on Monday. This is lower than the 60 bps cut-off that was paid at the auction on June 8. The highest premium FIIs were willing to pay was 50 bps, lower than 75 bps in the previous auction.
Nevertheless, premium is still hefty as the investment limit of $30 billion has been fully used. Intermittently, limits get freed owing to redemptions or sale of bonds to domestic investors.
As and when investment limits get free owing to selling or redemption, an auction is conducted for FIIs to bid for these limits. Securities and Exchange Board of India (Sebi) has mandated that once 90% of investment limit is exhausted, rest would be auctioned.
At Monday’s auction, 43 bidders participated and bids worth Rs 4,986 crore ($780 million) against the offered amount of Rs 2,451 crore.