* Results of auction however show only tepid interest
* RBI's Gokarn says OMOs to be conducted based on liquidity
* Govt may withdraw withholding tax for FIIs for bonds -
By Subhadip Sircar
MUMBAI, July 4 Indian federal bond yields fell
for a second session on Wednesday on hopes of strong demand from
foreign investors at an auction to sell new debt limits.
The capital markets regulator will sell $5 billion of limits
to overseas investors after the government raised the ceiling
for foreigners to invest in government paper to $20 billion. The
additional limit can be invested in papers which have a residual
maturity of at least three years.
The increase in debt limits was part of the government's
efforts announced in June to prop up the rupee and revive
investor sentiment in the economy.
"Limits are available to foreign investors at very cheap
prices so it's likely there will be demand," said a trader with
a primary dealership.
However, post market close, sources told Reuters the debt
limit auction met only with tepid investor response due to
investment restrictions in the auctioned limits and because of
thin participation by some investors on account of a U.S.
Bonds were further boosted after Bloomberg-UTV reported that
the government may remove the withholding tax on bonds for
"I am leaning towards further flattening of the curve in the
back end, as the market sees current entry for Indian bonds
rather cheap," said Suresh Kumar Ramanathan, regional rates and
foreign exchange strategist at CIMB Investment Bank in Kuala
The most traded 9.15 percent 2024 bond fell 3
basis points to 8.38 percent while the 10-year bond
fell 3 basis points to 8.33 percent during the
The benchmark 10-year bond ended 2 basis
points lower at 8.16 percent.
The absence of any open market operation announcement so far
this week, however, kept a floor on yields.
Subir Gokarn, a deputy governor at the Reserve Bank of
India, said open market operations will be conducted based on
the liquidity situation and were unrelated to rupee movements.
The one-year OIS rate closed down 2 basis
points at 7.79 percent, while the five-year rate
fell 1 bp to 7.21 percent.
(Editing by Anand Basu)