(Updates to add auction results)
By Suvashree Choudhury
MUMBAI, Oct 17 (Reuters) - Demand for high-yielding Indian
government bonds is dwindling, going by the reduced interest
seen at an auction on Monday for foreign investors for
rupee-denominated sovereign paper.
The Securities and Exchange Board of India offered 93.30
billion rupees ($1.40 billion) worth of quota to foreign
But foreign investors were ready to pay near zero for the
right to buy 1 billion rupees ($15 million) of quota, according
to traders who have been interacting with the potential buyers.
Bidding was due to start at 3.30 pm (1000 GMT).
As expected, foreign investors paid 0.000150 rupees for
buying a right to buy a specific amount of government bonds
allocated to them in the auction. It was fully sold with total
bids received at 94.58 billion rupees.
At the previous auction last month, they paid a fee of
0.0337 rupees, meaning an outlay of $5,000 for a quota of $15
million. In early 2015, they had paid a fee as high as 1 rupee.
Until a few months ago, government bonds had been a favorite
for foreign investors, but traders said global risk aversion
afflicting most emerging markets has dampened the appetite for
being invested at the long-end of the Indian bond market.
"It's not that investors are drooling over each other to buy
government bonds," said Ashish Vaidya, head of trading at DBS
Bank in Mumbai. "It'll go at a fairly cheap fee."
Ajay Manglunia, head of fixed income markets at Edelweiss
Securities, which handles bids from foreign investors, said the
large amount of quota on offer at Monday's auction put investors
in a stronger position to pay less, especially as auctions were
taking place every three weeks.
"So foreign investors may want to just put in a nominal
amount close to zero and then decide over the next two weeks
whether to actually buy bonds or let go their limits depending
upon risk environment," Manglunia said.
The bond market remained lacklustre on Monday, with yields
ticking higher. The 10-year government bond yield
rose to as much as 6.78 percent on Monday, its highest level
since October 4.
Expectations of a U.S. interest rate hike, stronger oil
prices and worries over the U.K. and European economies
following Britain's vote to quit the European Union have made
investors more cautious.
Foreign investors' retreat in the last few months from the
previously hot bond market has resulted in a net outflow of
$936.96 million between January and October.
Luckily for India, inflows to the share markets have
remained robust over the same period, standing at $7.56 billion.
($1 = 66.5919 Indian rupees)
(Reporting by Suvashree Dey Choudhury; Editing by Simon