Foreign institutional investors (FIIs) paid an unprecendented 74 basis points of premium to get hold of a slice of investment limit in government bonds on Monday.
The National Stock Exchange auctioned investment limits worth Rs 2,674 crore (around $420 million) in the government debt to FIIs on Monday. The highest premium offered was 86 bps at the auction where 62 FIIs participated.
The government bond yields have fallen more than 50 basis points in the last two months, which has made the scramble for acquiring them more intense at the auctions. Monday’s auction attracted bidding worth Rs 5,653 crore (around $900 million), more than double the amount up for grabs.
FIIs have poured in a record $26 billion into Indian bonds so far in 2014, the highest ever inflow seen since liberalisation. The bulk of the inflow has been in the government bonds and, thus, investment limits had hit the $25-billion cap in August. Sebi has mandated that once 90% of investment limits is used, the rest would be auctioned. In the previous auction on December 1, the bidding from FIIs was aggressive enough.
The cutoff price at that auction, too, had been high at 68.30 bps.