FIIs auction of govt bonds sail smoothly

Rising yields an attractive investment for FIIs

The high government bond yields might have impacted the treasury portfolio of banks, but it is certainly helping  attract interest of foreign institutional investors (FIIs). In the FII auction of government bonds held on Tuesday, the total market demand was once again higher than the amount available for auction.

The total market demand was worth Rs 64,908 crore, while the amount available for auction was Rs 58,264 crore. According to traders, this was because yields have been rising, thus making it attractive for FIIs to invest in government bonds.

In the previous auction held last month, the total market demand was worth Rs 25,905 crore, while the amount available for auction was Rs 23,661 crore.  The yield on the 10-year benchmark bond 7.16 per cent 2023 rose to 9.48 per cent on Tuesday before ending the day at 8.91 per cent. The yield had ended at 9.23 per cent on Monday.  “These yield levels are very attractive for FIIs to invest in government bonds due to which they are buying in the auction,” said S Srinivasaraghavan, executive vice president and head- treasury, Dhanlaxmi Bank.

Since the start of this financial year, the yield on the 10-year benchmark government bond rose by 150 basis points.

However, according to government bond dealers, the yield fell on Tuesday as the Reserve Bank of India (RBI) was buying back bonds due to which liquidity was infused in the market. Earlier during the day, the yield rose tracking the weakening rupee which touched a new all-time low at Rs 64.12 a dollar.

The rupee finally ended at an all-time closing low of Rs 63.23 compared with previous close of Rs 63.13.

But traders are of the view that yields might fall further, as on Tuesday, after market hours, the RBI announced measures to comfort the treasury portfolio of banks and mitigate the anxiety in the bond market. “The yield might fall to 8.50 per cent on Wednesday and market sentiments would improve,” said Balginder Singh, government bonds dealer at Andhra Bank.

But traders also believe that government bonds would still be an attractive option for FIIs in the near-term.

In Tuesday's auction, the cut-off yield was at 0.0026 per cent, compared with 0.05 per cent in the auction held last month. The highest bid was quoted at 0.80 per cent, compared with 1.00 per cent in the last auction. However, the number of bidders reduced to 40 compared with 51 in the previous auction.