States borrowing cost rises for third week, jumps 12 bps to 7.77%

The average cost of market borrowing for states rose 12 basis point to 7.77 per cent on Monday, increasing for the third consecutive week.

The cost of funds has seen a cumulative hike of 31 basis points (bps) during the past three weeks.

At the latest auction of debt, 10 states raised Rs 19,500 crore on Monday, drawing down the full amount indicated for this week.

The weighted average cut-off of the debt rose by 12 bps to 7.77 per cent from 7.65 per cent in the last auction, despite the weighted average tenor declining to 13 years from 15 years, Aditi Nayar, chief economist at Icra Ratings, said in a note.

Before the yields began to climb three weeks ago, for four successive weeks the rates had been falling and had touched a low of 7.46 per cent.

She attributed the spike in the cut-off to the rise in US treasury yields and the hike in the 50 bps repo rate by the RBI last Friday. Reflecting the hardening interest rate regime, the 10-year G-secs (Government Securities) yield increased to 7.47 per cent from 7.29 per cent last Tuesday.

Similarly, the weighted average cut-off of the 10-year state bonds rose to 13 bps to 7.79 per cent from 7.67 per cent last week. Accordingly, the spread between the weighted average 10-year state debt and G-secs yield eased to 32 bps from 38 bps in the same period.

At Monday's auction, Rs 8,900 crore or 46 per cent of the total issuance was in longer tenors and Rs 6,600 crore or 34 per cent were in the 10-year bucket. The balance Rs 4,000 crore or 21 per cent were raised by Maharashtra as an eight-year debt.

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