Ever since Sebi started auctioning investment limits in the debt market for foreign investors in 2012,bids could be far below the limits offered,say traders. Investment limits worth R42,022 crore (around $7.5 billion) in government bonds will be up for grab on Thursday. Bond traders say FIIs are currently in a selling mode and would be reluctant to bid for fresh limits at the auction. The size is bigger and the sentiment is not favourable, said Jayesh Mehta,head of global markets at Bank of America-Merrill Lynch,adding the response from FIIs could be tepid. In a notification earlier this month,Sebi had said unused limits as on June 18 will be auctioned as against the earlier practice of unused limits on the last day of the previous month being offered. Data from depositories showed on June 18,R42,022 crore worth of limits in government bonds were unused by FIIs. The government hiked total FII debt investment limit in the government bonds by $5 billion to $30 billion on June 12,but the additional limit would be available only for long-term investors such as sovereign wealth funds,central banks,pension funds and insurance companies. This limit of $5 billion is available to long-term investors while the $25 billion limit will be auctioned. Mehta said even though FIIs may bid,they would not be willing to pay high premiums. In the May auction for limits,FIIs had paid premiums as high as 14 basis points. FIIs are right now in a sell mode. They are looking to exit and so it makes little sense to bid for fresh limits, said a bond trader at a European Bank. Foreign investors have sold $4.7 billion worth of bonds over the last one month. Following this selling,government bond yields have risen by 10 basis points and the rupee hit an all-time low of 58.98/$ on June 11.
