G-Secs Gain on Higher FII Investment

MUMBAI: Government securities (G-Secs) gained following a move to increase investment limit for foreign institutional investors, qualified institutions and foreign portfolio investors by $5 billion. The rupee gained initially but shed its gains to close unchanged at Wednesday’s level.

Of the $30 billion overall limit in government securities for overseas investors, $10 billion had been reserved for long-term investors such as sovereign wealth funds, pension funds and others. Since there was less demand from long-term investors and greater demand from other category of investors the government raised the limit for FIIs and FPIs.

Long-term investors had subscribed to just 24.05 per cent of the available limit so far, while FIIs and other investors purchased 99.75 per cent of the limits available to them. Yield on the 10-year government bonds fell to 8.64 per cent compared with Wednesday’s level of 8.69 per cent. The rupee gained to as high as 60.03 per dollar before slipping to close at 60.12 per dollar.

“With continued fascination for government paper and new space for $5 billion created further, the new 10-year paper due to be released on Friday is likely to be very much sought after,’’ said K Harihar, the treasurer at FirstRand Bank in Mumbai. “The rupee opened stronger on expectations of inflows but overall factors governing the rupee are evenly matched and the currency is expected to trade broadly between 59.75 and 60.25 per dollar.’’

The RBI on Friday is scheduled to sell a new 10-year government bond maturing in 2024 compared with existing benchmark that matures in 2023. Dealers expect the new security to trade around 8.38 per cent to 8.40%. Yield on the 10-year US bonds currently trade at 2.50 per cent.