States debt cost reaches 7.71 %, spread between 10-year State bonds and G-Sec jumps to 2-year high of 53 bps

Mumbai: At the first weekly auction of the last quarter of 2023-24, the states saw their interest burden sharply rising to cross the 7.7 percentage mark on Tuesday, leading to the spread between the cut-off of 10-year state bonds and the G-sec yield crossing the 50 basis points mark for the first time in two years.

At 53 basis points, the spread between the yield on the sovereign debt and that of the state bonds is the highest since January 2022.

According to Aditi Nayar, the chief economist at Icra Ratings, both coupons at 7.71 per cent and the spread jumped to record levels due to the concerns of large supply in the final quarter of the fiscal year.

At the maiden auction of the fourth quarter, six states collectively raised Rs 16,000 crore through state government securities (SGS) which is 19 per cent on-year higher, and in line with the amount indicated for the week in the Q4 auction calendar.

Taking a cue from the all-time high indicative borrowing of Rs 4.1 lakh crore in the final quarter of FY2024, the weighted average cut-off jumped increased by a sharp 8 bps to 7.71 per cent from 7.63 per cent last week, despite the decline in the weighted average tenor to 11 years from 15, Nayar said.

Moreover, the spread between the cut-off of 10-year SGS and the 10-year G-sec (7.18 GS 2033) yield widened by 5 bps to touch 53 bps from 48 bps last week, which is the highest since January 2022, she said, adding the spike in the spread as well as the pricing was primarily because of the investors' concerns about larger supply in the quarter.

The spread between the cut-off of 10-year SGS and G-sec yield crossed 50 bps, the highest since January 2022 on concerns of large supply

So far this fiscal the states have drawn down 31.7 per cent on-year more money from the market at Rs 6.2 lakh crore as against Rs 4.71 lakh crore in the same period last fiscal.