As borrowings taper, yields on state bonds ease by 7-8 basis points

22 Jun 2022 , 12:52 PM

At Tuesday’s auction, 10-year state development loan (SDL) rates decreased by 7-8 basis points, although the amount raised by state governments remained below the forecasted amount.

The Reserve Bank of India conducted a bond auction last week, and the cut-off rates grew more difficult by 5—6 basis points. It was the first auction following the central bank’s 0.5% rise in the repo rate to 4.90%.

According to RBI statistics, the cut-off yield for the 10-year SDL was 7.86—88% as opposed to 7.94—95% on June 14, 2022. The difference between the 10-year Government of India bond yield and the weighted average 10-year SDL yield increased slightly this week, rising to 37 bps from 36 bps.

On June 21, 2022, six states received Rs 6,500 crore through SDLs, which is over 60% less than the amount projected for this week. Despite having said they would borrow a large Rs 9,600 crore during this week’s auction calendar, eight states chose not to participate today, according to rating agency Icra.

In addition, compared to the amount projected for this week, Andhra Pradesh and Tamil Nadu both borrowed Rs 1,000 crore fewer SDLs today. However, despite not having announced that they would participate in today’s weekly auction, Assam and Rajasthan collectively borrowed an extra Rs 1,400 crore, and Mizoram and Nagaland raised Rs 500 crore SDLs.

In eight of the twelve weekly auctions held in Q1 FY2023, the SDL issuance overall fell short of the indicated amount. The entire amount raised by 16 state governments and the Union Territory (UT) in Q1 FY2023, which is Rs 90,700 crore, is about 47% less than the stated Rs 1.7 trillion. According to Icra, the borrowings are down 26.8% year over year from the previous level (Rs. 1.24 trillion).