States forced to pay higher spread as oversupply concerns take hold

The rise in spreads is a direct measure of market displeasure than a rise in yields. This is because if spreads widen, SDL yields could still rise even when G-sec yields remain where they are

Forced to hit the market to meet their deficits, states are seeing their cost of borrowing rise.

The spreads between state development loans (SDLs) and equivalent-maturity government papers have started widening, and market participants don’t expect them to contract anytime soon. In Tuesday’s auction, the spread between the 10-year SDL and 10-year government security (G-Sec) was 72 basis points (bps), against 64 bps in the previous auction, rating agency ICRA noted. The spreads generally stay at 50-60 bps. One basis point is a hundredth of a percentage point.

The rise in spreads is a direct measure of market displeasure than a rise