The auction of freed investment limit in government bonds to foreign institutional investors (FIIs) on Monday saw a frenzy for a small chunk of $30 million and FIIs paid an unprecedented 100 bps of premium to get hold of an investment slice.
The National Stock Exchange auctioned investment limits worth R310 crore (around $50 million) in government debt to FIIs on Monday. The highest premium offered was 110 bps at the auction where 43 FIIs participated. The Securities and Exchange Board of India has mandated that once 90% of investment limits are used, the rest would be auctioned.
Government bond yields have fallen more than 50 bps in the last three months, which has made the scramble for acquiring them more intense at the auctions.
Monday’s auction attracted bidding worth R813 crore (around $130 million), more than three times the amount up for grabs.
With the government bond investment limit exhausted and small amounts freed as and when due to redemptions or sale by FIIs, foreign investors have been picking up corporate bonds since September. In January, FIIs poured in $3.7 billion into corporate bonds and another $2.9 billion into equities.