After paying record high premiums to get a slice of the investment limit in Indian government bonds, foreign investors tempered their bids this time as seen by the fall in premiums paid at the auction of limits on Monday.
Foreign institutional investors (FII) paid 55 bps to get investment limits worth Rs 1,285 crore ($200 million) in government bonds on Monday. This is lower than the record high 74-bps cut-off that was paid at the auction on December 22.
Nevertheless, FIIs were still ready to pay hefty premiums to get hold of investment limits in risk-free sovereign bonds. The total investment limit in government bonds is $25 billion, which has been exhausted since August.
As and when investment limits get free owing to selling or redemption, an auction is conducted for FIIs to bid for these limits.
The Securities and Exchange Board of India has mandated that once 90% of investment limits are used, the rest would be auctioned.
The government bonds returned around 16% in 2014 to FIIs, one of the highest returns among emerging market bonds. FIIs picked up a record $26.4 billion into bonds in 2014 but the flows have slowed a bit in 2015. So far in January, FIIs have bought $402 million of bonds.