Mumbai: Foreign institutional investors (FIIs) are almost near to exhausting the debt market investment limit that they got additionally, and most of them are swiftly resorting to short-term debt instruments, reported The Economic Times.

Besides investing in 1-3-year government-issued bonds, FIIs are also investing in certificates of deposits and commercial papers, where yields have exceeded the 10 percent mark. Treasury bill segment is the other favorite instrument among FIIs.

Considering the lower yields seen in the U.S. market against low Libor levels, local bond traders estimate that FIIs' earning could be anywhere between 150-200 basis points.

Another element that gives FIIs considerable comfort is falling rupee, which gets them more rupee funds on conversion from dollars. The Indian currency recently breached the 43-mark against the dollar.

A senior treasury manager with a bond house says, "FIIs were the largest bidders at the recent auctions of treasury bills, for the past two weeks. The yield on the 91-day treasury bill is currently around the 8.7-8.8 percent while yields on the 182-day and 364-day bill have already crossed the 9 percent level."

IDBI Gilts head treasury S Raghavan said, "Investments made by FIIs in the local market is also a function of existing market conditions in countries these FIIs hail from. Most of the current players come from the U.S. In case, these players experience weak market conditions in their homeland, they find it even more prudent to pull out funds from there and bring them into more lucrative markets."

Senior officials stated that while FII investments in corporate bonds or bonds issued by public sector companies is easier to decipher, it is difficult to procure information on investments made in short-term debt.

Given that the government bond market has seen short-term yields exceeding the long-term yields, FIIs have also been key investors in government bonds having a 1-3-year tenure.