Foreign investors bond with India, close in on $5.5-billion T-bill quota

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At the weekly auction on Tuesday, the cut-off yield on the 91-day Treasury bill was even higher at 9.11%. Reuters At the weekly auction on Tuesday, the cut-off yield on the 91-day Treasury bill was even higher at 9.11%. Reuters
SummaryAt the weekly auction on Tuesday, the cut-off yield on the 91-day Treasury bill was even higher at 9.11%.

Indian bonds are once again a favourite with foreign institutional investors (FIIs). The first 11 sessions of February have seen FIIs buy $1.6 billion worth of bonds, a strong run rate, data from the Securities and Exchange Board of India (Sebi) show. The purchases come on the back of a net $2 billion in January.

FIIs are, however, betting almost exclusively at the short end of the curve, snapping up high-yielding treasury bills; as on February 17, FIIs had exhausted 99% of the $5.5-billion investment limit in T-bills.

“Much of the money into the bond market appears to be coming into the short-term bonds and treasury bills,” Ananth Narayan G, head, global markets, Standard Chartered Bank, told FE.

The yield on treasury bills has been ruling at around 9% since January, while the yield on the most liquid benchmark 10-year 8.83%, 2023 government bond has been around 8.75% levels.

At the weekly auction on Tuesday, the cut-off yield on the 91-day Treasury bill was even higher at 9.11%. Equally important, the one-month offshore non-deliverable forward (NDF) dollar/rupee premium has dropped to levels of 20-30 paise over the last 45 days. “It’s a low-risk arbitrage trade and, therefore, it may continue as long as offshore hedging is conducive,” said Hitendra Dave, head, global markets, HSBC.

In the government bonds category, 76% of the $14.5-billion investment has been exhausted while in corporate bonds, FIIs hold a mere $14 billion out of the total available $51-billion limit.

The Reserve Bank of India (RBI) has been making efforts to encourage more long-term money into the bond market. In January, the central bank had increased the investment limit for long-term foreign investors in government bonds by $5 billion to $10 billion, effectively reduced the limit available for short-term investments by the same margin. Last week, the RBI reduced the sub-limit of FII investment into short-term commercial paper by $1.5 billion.

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