Cut-off yields ease by 7-8 bps at State bond auction as borrowings taper

This week, spread between weighted average 10-year SDL and 10-year GOI bond yield was up slightly to 37 bps from 36 bps earlier

The yields on 10-year state development loans (SDL) at Tuesday’s auction eased by 7-8 basis points while amounts raised by state governments continued to be lower than the indicative calendar.

Last week, the cut-off yields at Reserve Bank of India conducted bond auction had hardened by 5-6 basis points. It was the first auction after the central bank’s half a percentage point increase in the repo rate to 4.90 per cent.

RBI data showed the cut-off yield for 10-year SDL at 7.86-88 per cent as against 7.94-95 per cent on June 14, 2022. This week, the spread between the weighted average 10-year SDL and 10-year Government of India bond yield increased mildly to 37 bps from 36 bps earlier.

Six states raised Rs 6,500 crore through SDLs on June 21, 2022, nearly 60 per cent lower than the indicated amount for this week. Eight states did not participate today, though they had indicated that they would borrow a substantial Rs 9,600 crore in this week's auction calendar, according to rating agency Icra.

Additionally, Andhra Pradesh and Tamil Nadu each borrowed Rs 1,000 crore less SDLs today, compared to the amount indicated for this week. In contrast, Assam and Rajasthan together borrowed additional Rs 1,400 crore and Mizoram and Nagaland raised Rs. Rs 500 crore SDLs even though they had not indicated to participate in today’s weekly auction.

Overall, the SDL issuance has trailed the indicated amount in eight of the 12 weekly auctions held in Q1 FY2023. The total Rs 90,700 crore raised by 16 state governments/Union Territory (UT) raised so far in Q1 FY2023, is nearly 47 per cent lower than the indicated Rs. 1.7 trillion. On a Year-on-Year basis, the borrowings are 26.8 per cent lower than the year-ago level (Rs 1.24 trillion), according to Icra.