Last week’s decline was the steepest so far this year. Since the beginning of this fiscal, states have been paying much higher for their market borrowings with the average yields sniffing at the 8-percentage-mark for many weeks. But with falling international crude prices and also the fall in the US yields last week, the yields on central government bonds have also declined this week.
At Monday’s auctions of SDLs, eight states raised Rs 13,800 crore, 13 per cent higher than the indicated level, wherein the weighted average cut-off also rose by 11 bps to 7.84 per cent. However, the spread between 10-year SDLs and G-secs (government securities) yields eased to 40 bps from 45 bps last week. The average tenor of borrowing also rose to 14 years from 13 years last week.
Reflecting the rising interest rate scenario, the yield on the benchmark 10-year central government bonds (G-secs 2032) also climbed by 15 bps to 7.35 per cent from 7.20 per cent last week.
The Monetary Policy Committee of RBI increased the repo rate by 50 bps on August 5 in a second consecutive hike in its bi-monthly rate revision, as part of its effort to rein in inflationary expectations, which suggests another rate hike in the upcoming review, Nayar said.
As a result the weighted average cut-off of the 10-year SDLs also rose to 7.75 per cent from 7.64 per cent last week. Accordingly, the spread between the weighted average 10-year SDLs and 10-year G-secs yield eased to 40 bps from 45 bps.
Borrowings rose at the latest auction as Gujarat (Rs 2,000 crore) and Telangana (Rs 1,000 crore) borrowed Rs 3,000 crore, despite not having indicated their participation in the auction calendar for this week.
In contrast, Himachal, Kerala, Maharashtra, Meghalaya and Nagaland did not participate in the auction even though they had indicated a combined borrowing of Rs 5,400 crore.
The latest issuance was nearly 14 per cent higher than the year-ago level but despite this, the cumulative issuance of Rs 1,98,000 crore by 22 states so far this fiscal is 9 per cent lower than the year-ago level and the actual issuance so far is 30 per cent below the indicated level of Rs 2,82,100 crore.