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Wednesday, November 30, 2022

States’ borrowing cost surge for third week at 12 bps to 7.77%

The average cost of market borrowing for states surged by 12 basis point to 7.77 per cent on 3 October, increasing for the third consecutive week.

During the past three week, the cost of funds has seen a cumulative hike of 31 basis points (bps).

The 10 states raised 19,500 crore on 3 October at the latest auction of debt drawing down the full amount indicated for this week.

In the recent auction, 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. This took place despite the weighted average tenor declining to 13 years from 15 years, said Icra Ratings’ chief economist Aditi Nayar.

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She added that before the 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.

Attributing the spike in the cut-off to the rise in US treasury yields, Nayar said the the hike in the 50 bps repo rate by the RBI last Friday resulted in this change.

The 10-year G-secs (Government Securities) yield rose to 7.47 per cent from 7.29 per cent last Tuesday, reflecting the hardening interest rate regime.

Also, 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.

About 8,900 crore or 46 per cent of the total issuance was in longer tenors and 6,600 crore or 34 per cent were in the 10-year bucket at Monday’s auction. As an eight-year debt, Maharashtra raised the balance 4,000 crore or 21 per cent.

Punjab borrowed 400 crore in 20-year tenor at 7.7 per cent, while Kerala raised 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.

With PTI inputs.

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