India: Yields of state govt debt up sharply

  • The cost of debt-funds for the states has touched the highest level so far this fiscal with the weighted average cut-off crossing 7.16% at the latest auctions, up 11 bps over the past week, reflecting the hardening yields even for the government securities.
  • The hardening of the rates at the first auction of the quarter comes in the wake of the expected large supply of debt from the states, as indicated for 1Q22 at INR3.2tr, up by INR100bn.
  • 9 states on 4 Jan 22 raised INR189bn at the latest auction of state development loans. The auction was just 2% lower than the indicated amount for this week, which is among the highest drawdowns so far this fiscal year, Aditi Nayar, the chief economist at the rating agency Icra said in a note.
  • Even though the weighted average tenor remained unchanged at 12 years in line with the last auction, the weighted average cut-off rose sharply by 11 bps to 7.16% from 7.05%, reflecting a large supply for the quarter.
  • On the other hand, the weighted average cut-off for the 10-year loans hardened by 10 bps to 7.13% today from 7.03% on 28 Dec 21.
  • Meanwhile, the benchmark 10-year G-secs yield rose by 4 bps to 6.52% from the last auction. Accordingly, the spread between the 10-year weighted average SDL and 10-year G-sec yield widened to 61 bps from 55 bps.
  • Gross SDL issuance is pegged at INR7.9tr in FY22, just 1% lower than the FY21, while the net issuance is estimated at INR5.8tr for FY22, which is 11% lower than the last year, adjusting for the expected redemptions of INR2.1tr in the current fiscal.

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