Govt bonds gain after RBI allows foreign investors to invest in treasury bills

10-year government bond yields fell in early morning trade after the Reserve Bank of India eased investment rules for foreign investors in debt by allowing them to invest in short-term treasury bills. At 10:17 am, bond yields fell 0.61% or 0.047 points to 7.720. The bond yield opened at 7.725 versus previous close of 7.767. The 10 year-govt bonds have delivered 5.38 percent returns since the beginning of this year.

"FPIs are permitted to invest in treasury bills issued by the Central Government," the RBI said while issuing clarification on recent changes in investment norms for FPIs.

However, the government has capped exposure of foreign portfolio investors (FPIs) to government securities as well as corporate bonds of less than one year maturity below 20 per cent.

"In case investments in securities with less than one year residual maturity, as on 02 May 2018 (beginning of day), is more than 20 per cent of total investment in any category, the FPI shall bring such share below 20 per cent within a period of six months...," the RBI said.

The move has proved to be beneficial for the bond market where yields had been rising for the last nine trading sessions (except on April 24) since April 16, 2018.

In April, bond yields rose 5% hitting a high of 7.785 and low of 7.123. This was the maximum rise in bond yields since February 2017 when it rose 7.21% on a monthly basis.