State governments, desperately needing funds to fight a lockdown-induced slowdown, on Tuesday paid a steep price to borrow Rs 32,560 crore from the bond market, even as investors engaged in a negative bidding strategy to preserve their liquidity at a time when the markets are operating with curtailed timings.
In the face of heavy supply from both states and the Centre, and with foreign portfolio investors (FPIs) leaving the country, domestic investors demanded states to cough up spreads of 140-200 basis points (bps) over the equivalent government securities — and the states acquiesced. For example, Kerala paid 8.96 per cent for a 15-year bond. The equivalent maturity government security closed at 6.92 per cent. In normal times, spreads are not more than 60-70 bps over the equivalent maturity government securities.
According to the schedule, 19 states had lined up to borrow up to Rs 37,500 crore, but they managed to raise Rs 32,560 cr
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