Mumbai: After falling last week, the market-funding cost for the states continues to head north, with the latest auction seeing the average cut-off rate or yield jumping by as much as 12 bps to 7.84 per cent, but for the Centre, it remained flat.
After rising for four weeks in a row, the average price that the states pay to their debt investors fell by 11 bps to 7.72 per cent at the auctions held on October 18.
The weighted average cut-off rose by 12 bps to 7.84 per cent from 7.72 per cent in the last auction, with a rise in weighted average tenor to 13 years from 12 years, Aditi Nayar, the chief economist at rating agency Icra said in a note.
As against this, the benchmark 10-year G-sec yield only inched by 1 bps to 7.44 per cent, while the weighted average cut-off of the 10-year state bond jumped 10 bps to 7.83 per cent. Accordingly, the spread between the weighted average cut-off of 10-year state debt and the 10-year G-sec yield increased to 39 bps from 30 bps.
Tuesday's auction was the first so far this fiscal wherein the states borrowed more than what was notified in the quarterly auction calendar, as 14 states have drawn down Rs 25,200 crore, which is 3 per cent more than indicated (Rs 24,500 crore) in the auction calendar. This auction was also the second largest this fiscal.
Haryana, Rajasthan, Uttar Pradesh and Bengal raised Rs 4,500 crore more than the amount that they had indicated in the Q3 auction calendar.
Additionally, Meghalaya borrowed Rs 300 crore, despite not having indicated its participation in the auction calendar for this week.
In contrast, Karnataka, Punjab and Uttarakhand did not participate in the auction, even though they had indicated a combined borrowing of Rs 2,500 crore for this week, and Goa, Gujarat and Madhya Pradesh borrowed Rs 1,600 crore less than indicated.
As much as 52 per cent or Rs 13,000 crore was in the longer tenors (means more than 15 years), 27 per cent or Rs 6,900 crore in the 10-year bucket and the balance 21 per cent in the shorter tenors.
But Kerala issued a 22-year debt paper at a cut-off of 7.81 per cent and Tamil Nadu issued a 20-year paper at a cut-off of 7.83 per cent. These cut-offs are in line with or lower than the weighted average for the 10-year papers, and softer than the cut-off of 11-18 years securities raised by Madhya Pradesh, Rajasthan, Uttar Pradesh, and Bengal in the auction.
Cumulatively, 24 states have raised Rs 3.5 lakh crore, which is 6 per cent lower than the year-ago level.