Cost of state debt soars to 7.24%

Mumbai: Ahead of the monetary policy announcement on Thursday wherein the MPC is likely to begin liquidity tightening with a marginal reverse repo hike, states on Tuesday had to pay a higher price to bond investors as the weighted average cut-off rate jumped by a hefty 41 basis points to 7.24 per cent.

In the previous auction of State Development Loans (SDLs) last Tuesday, the cut-off was only 6.83 per cent.

However, the weighted average cut-off for the 10-year state debt issuance hit a record 7.29 per cent on Tuesday. This is 8 bps higher than 7.21 per cent seen last week and the spread between the 10-year G-secs yield and SDL widened to 48 bps from 38 bps.

On Tuesday, the 10-year G-secs yield eased to 6.81 per cent compared to 6.83 per cent last week.

At the latest auctions, nine states raised Rs 14,200 crore, which is 48 per cent lower than the indicated level for the week at Rs 27,500 crore. As many as 11 of the 19 states, which had initially indicated a borrowing of Rs 12,300 crore, did not participate in today's auction.

Additionally, Maharashtra lowered its drawdown by Rs 1,000 crore and Mizoram by Rs 100 crore. Manipur borrowed Rs 60 crore even though it did not initially indicate its participation.

The spread between the 10-year SDLs and the benchmark 10-year G-secs widened to 48 bps from a low 38 bps last week.