Odd lots involve trading in anything less than the standard 100 units. In odd lots, the seller or the market maker gets to decide on the premium.
The deal involved three bonds that mature in eight to 10 years. According to sources, the bonds were 8.15 per cent, maturing in 2026, 8.33 per cent in 2026 and 9.15 per cent in 2024.
Sources said JP Morgan India might have sold the bonds at a steep premium, as much as 15 basis points below the market yield. As yields fall, prices of bonds rise. A premium of 15 basis points indicates 90 paise to Rs 1.05 commission per bond that has a face value of Rs 100. Hence, JP Morgan could have charged at least Rs 27-30 crore as a fee for the transaction.
According to local bond arrangers, foreigners are fine with any fee as long as they can get hold of Indian debt papers. Not only has the Indian rupee remained stable in the past few years and is also expected to be stable in 2016, the Indian debt market also offers one of the highest yields among all emerging markets currencies. India's healthy macroeconomic fundamentals - including high economic growth, low inflation, stable political environment, and relatively low deficit numbers - have made the country one of the most preferred debt investment destinations in the world.
India is also attracting long-term bond investors, such as global pension funds, who are taking positions in the extreme long end of the Indian bond curve. To satiate this demand, the Reserve Bank of India (RBI) introduced a 40-year bond in October last year, raising Rs 5,000 crore. According to bond investors, marquee names participated in the auction.
Franklin Templeton is bullish on India's debt papers. In August 2014, the firm surprised the market by buying about Rs 16,000 crore worth of Indian government bonds in a single day, prompting the market to rally that time.
However, the company did not want to comment on this particular deal.
"As a matter of policy, we do not comment on individual securities," said a Franklin Templeton spokesman in response to a Business Standard email.
JP Morgan did not reply to the email sent to it.
The new year has started on a positive note for the Indian bond market, which witnessed a lacklustre 2015. Even as the RBI cut policy rates by 125 basis points, the 10-year bond yield fell only about 20 basis points in the entire year.
On Friday, the RBI introduced a new 10-year benchmark bond for a coupon of 7.59 per cent, only 13 basis points lower than the benchmark last year. Between now and May 2015, when the last benchmark was issued, the policy rate has come down by 75 basis points. Ideally, bond yields should fall as much as the policy rate cut.
However, the mood may change this year, led by foreign investors. The government opened up fresh space for foreign investors to buy bonds worth Rs 7,396 crore. The debt limit auction witnessed some unusually high bidding, with the highest bid reaching up to as high as 88 basis points. In all, 60 foreign entities bid Rs 14,285 crore to get their rights to fill up the freshly opened space.