The frenzy to invest in the government bonds at present offering one of the highest returns on debt among emerging markets was evident at the auction of investment limits to foreign investors on Tuesday.

Foreign institutional investors (FII) were ready to pay the highest price, 35 basis points, to get hold of investment limits in government bonds at the auction. The cut-off came in at 30 bps, the highest ever. Limits worth R646 crore (around $100 million) were put up for auction on Tuesday, attracting bids worth R2,094 crore (around $350 million).

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FIIs have already exhausted 99% of the $25-billion investment limit in government bonds. The Securities and Exchange Board of India (Sebi) had mandated that once 90% of investment limits are used, the rest would be auctioned.

Even in the previous auction on October 1, FIIs had bid aggressively. However, the cut-off price at that auction had been 15 bps, far lower than the 30 bps at Tuesdays auction. FIIs have poured in a record $21.6 billion into Indian bonds so far in 2014, the highest ever inflow seen since liberalisation.

Yields on government bonds range in 8.25-9.50% band across tenures with the 10-year benchmark security at 8.37%.