States Borrowing Cost Increase for the Third Week by 12 bps to 7.77%

On Monday, states’ average market borrowing cost increased by 12 basis points (bps) to 7.77% for the third consecutive week. The ten states raised Rs.19,500 crore at the latest debt auction drawing down the entire amount indicated for this week. There has been a cumulative hike of 31 bps in the cost of funds during the past three weeks.

The weighted average cut-off of the debt increased by 12 bps to 7.77% from 7.65% in the last auction. Aditi Nayar, Chief Economist of the ICRA Ratings, stated that it took place despite the weighted average tenor reducing to 13 years from 15 years.

She also stated that before the yields began to increase three weeks ago, the rates had been falling for four successive weeks and had touched a low of 7.46%. The hike in the 50 bps repo rate by the RBI last Friday and the hike in the cut-off to the US treasury yields rise resulted in the spike in the states borrowing costs.

The 10-year G-secs (Government Securities) yield increased to 7.47% from 7.29% last Tuesday, reflecting the hardening interest rate regime. The weighted average cut-off of the 10-year state bonds rose from 13 bps to 7.79% from 7.67% last week. Accordingly, the spread between the weighted average G-secs yield and 10-year state debt eased from 38 bps to 32 bps in the same period.

At Monday’s auction, around Rs.8,900 crore, i.e. 46% of the total issuance, was for longer tenors, and Rs.6,600 crore, i.e. 34%, were in the 10-year tenor. Maharashtra raised Rs.4,000 balance, i.e. 21% as an 8-year debt.

Punjab borrowed Rs.400 crore in 20-year tenor at 7.7%, while Kerala raised Rs.400 crore in 25-year tenor at 7.7%, which was lower than the weighted average cut-off of 7.79% of the 10-year tenor.

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