Given the recent sell-off in bonds worldover, foreign investors tempered their bids this time to get a slice of investment in the Indian government bonds as seen by the fall in premiums paid at the auction of limits on Monday.
Foreign institutional investors (FII) paid 50 bps to get investment limits worth R2,684 crore ($420 million) in the government bonds on Monday. This is lower than the 85.10 bps cut-off that was paid at the auction on April 27.
Nevertheless, FIIs were ready to pay a hefty premium to get hold of investment limits in risk-free sovereign bonds.
The total investment limit in the government bonds is $30 billion. Intermittently, limits get freed owing to redemptions or sale of bonds to domestic investors.
As and when investment limits get free owing to selling or redemption, an auction is conducted for FIIs to bid for these limits. Sebi has mandated that once 90% of investment limit is 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 and continue to give high returns in 2015 so far compared with other emerging market bonds.
Concerns over global oil price rise and the US Federal Reserve’s imminent rate hike, foreign investors had dumped bonds from Germany to Indonesia earlier this month. Yields on government bonds here had also risen more than 10 basis points due to the sell-off. FIIs sold $1.4 billion worth of Indian debt in the month of May 2015.