Bonds rally on talk of FII debt limit tweak

Jul 22 2014, 00:30 IST
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SummaryThe 10-year benchmark bond yield ended at 8.7%, down 7 bps from the previous clos

Benchmark bonds rallied on Monday on reports that RBI could raise the amount foreign institutional investors can buy in government debt by tweaking some of the sub-categories, while keeping the overall limit intact.

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.

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