FIIs lap up corporate bonds, gilts

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SummaryThe auction for $3 billion was fully subscribed, premiums surge.

The Securities and Exchange Board of India’s monthly auction of unused debt limits to foreign institutional investors on Thursday saw strong demand and a rise in premiums paid by FIIs. Premiums for corporate bond limits surged to as high as 16 basis points (bps) compared with 8 bps in the previous auction. For limits in government bonds without any tenure restrictions, the highest premium paid was 9 bps, marginally lower than 10 bps in the previous auction.

The Sebi auctioned investment limits worth $3 billion (R16,550 crore), out of which $785 million (R4,301 crore) limits were in corporate bonds without tenure restructions. Sebi auctioned $360 million (R1,985 crore) of limits in government bonds without restrictions. For long-term government bonds, wherein investors will have to buy bonds with residual maturity of five years, Sebi offered $1.8 billion (R10,264 crore).

The limits for corporate and government bonds were fully subscribed.

FIIs bid aggressively at Thursday’s auction not just for bonds without tenure restrictions, but also for long-term government bonds that typically see tepid demand. The strong response underscores the view that foreign investors continue to be bullish on Indian debt.

FIIs have been lapping up over 80% of the offered investment limits at previous auctions and debt without tenure restrictions have been fully subscribed every succesive auction. The highest premium investors were willing to pay for corporate bond limits was 16.61 bps while the cutoff premium was 12.75 bps. FIIs paid premium of 7 bps for government bonds without tenure restrictions.

Limits in infrastructure bond were not offered at the auction on Thursday.

Sebi initiates auction for infrastructure bonds only once the overall FII investment reaches 90% of the available $12 billion (R53,806 crore).

Till such time, FIIs can invest in infrastructure bonds without prior approval from the Sebi. On November 30, FIIs had invested only $3.03 billion (R16,619 crore) in infrastructure bonds.

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