FIIs bet on corp bonds but stay away from govt debt

Foreign investors showed increased interest in India’s unutilised corporate bonds auction given the rising yields and easing forward dollar rates, but they showed more muted interest at a similar auction for government debt, four market sources said.

“The 10-year corporate bond yield has been rising and is at an attractive level, while the government bond yield has not been rising much. So the corporate bond auction saw better response,” said a foreign bank dealer.

The 10-year corporate bond yield was at 9.38 percent, up one basis point from Friday, while the 10-year federal bond yield also rose 1 basis point, ending at 8.54 percent.

The 10-year government bond yield has steadily fallen this month to as low as 8.47 percent on May 16 from a high of 8.70 percent at start of May, while the corporate bond yield has been hovering steady around 9.40 percent this month.

The stock market regulator auctioned Rs3929 crore in corporate bonds without any tenure restrictions. This limit was over-subscribed at Rs 5841 crore from 28 bids.

The cut-off on this old category of corporate bonds came in at 0.135 percent compared with 0.055 percent in last month’s auction.

The amount auctioned in government bonds under the old category, which had no restriction on its tenure of investment, was Rs 3028 crore, attracting 15 bids worth Rs 3399 crore.

The cut-off on government bonds under the old category was 0.0155 percent, lower than the 0.0321 percent in its previous auction.

The market regulator also sold Rs 2802 crore of long-term government bonds, where foreign investors could only buy papers with tenures of more than five-years. This limit was under-subscribed at 18.75 billion rupees from 10 bids.

The cut-off on the long-term government bonds was almost nil at 0.000036 percent versus 0.0001 percent in its April auction.

Reuters