Expecting an improvement in policy environment and decline in interest rates in future, foreign investors bid aggressively for investment limits auctioned by the Securities Exchange Board of India (SEBI).

Foreign Institutional Investors (FII) bid for Rs 21,535 crore in government and corporate bonds. The figure represents a 30 per cent oversubscription against investment limits of Rs 16,550 crore.

For long-term government bonds with a minimum 5-year maturity, FIIs placed bids worth Rs 12,094 crore, against limit of Rs 10,264 crore.

Sandeep Bagla, executive vice president at ISec Primary Dealership, said, "We have seen good interest from long-term investors like sovereign wealth funds and central banks this time."

FIIs bid aggressively in anticipation of potential trading gains following a decline in interest rate in future. The Reserve Bank of India (RBI) is widely expected to slash interest rate in January. Apart from that, also anticipate an improvement in policy environment.

It is important to note here that bond yields and prices move inversely.

The success of the most recent auction is in steep contrast with the previous auction that was held in September. In that auction, FIIs placed bids for bonds worth Rs 13,255 crore worth, against Rs 23,488 crore on offer.