“The 10-14 years is a problem bucket. For 15 years and above, insurance firms are ready buyers and any maturity below 10 years has big demand,” said a senior dealer. Of late, bulk of issuance has been through bonds maturing between 10 to 14 years.
The demand for allowing more bonds below 10 years is not new but the government has not acted on this. For, it puts enormous redemption pressure too soon for the government, said another trader.
To compensate, the dealers have requested issuing of more bonds above 15 years.
Another issue discussed was to increase the permissible investment limit for foreign portfolio investors (FPIs) in bonds. Currently, FPIs are allowed to invest up to 5 per cent of those outstanding and have nearly exhausted the limit. At a time banks are not in a mood to invest in bonds, fearing mark-to market (revaluing at current value) losses, an increase in the FPI limit would help reduce the pressure, the bond dealers have said.
Dhawal Dalal, chief investment officer for fixed income at Edelweiss Asset Management, has said the feedback to the government would be to increase auctions of floating bonds linked to six months or 12-month treasury bills, consider regular issuance of benchmark government bonds for three years, five years, seven years, 10 years and 15 years, and to standardise interest payment dates, to develop a fixed income derivatives market.