Pay 150-bps premium in auction of freed investment limit in government bonds
Foreign institutional investors have poured a record $5 billion into Indian bonds so far in 2015 and were willing to pay sky-high premium to get a tiny investment slice in government bonds, the limit in which had long exhausted.
The auction of freed investment limit in the government bonds to FIIs on Monday saw a frenzy for a small chunk of $100 million and FIIs paid an unprecendented 150 basis points of premium to get hold of the investment slice. The Securities and Exchange Board of India (Sebi) has mandated that once 90% of investment limits is exhausted, the rest would be auctioned. The investment limit in the government bonds was exhausted in August 2014 and ever since, small portions of the limit were freed due to redemptions or sale to domestic investors, the freed portion were being auctioned.
The National Stock Exchange auctioned investment limits worth Rs 19.95 crore (around $100 million) in the government debt to FIIs on Monday. The highest premium offered was 161 bps at the auction where 56 FIIs participated.
The government bond yields have fallen more than 20 basis points so far in 2015, which has made the scramble for acquiring them more intense at the auctions. Monday’s auction attracted bidding worth Rs 19.95 crore (around $300 million), 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. Over 95% of the $5 billion inflow into bonds was into corporate papers.