Borrowing costs

Government borrowing costs fall

Expenses directly related to the purchase, development or production of a qualifying asset are called borrowing costs and are included in the cost of that asset. Additional government borrowing costs are classified as expenses.

Costs associated with borrowings may be capitalized or expensed as revenue. Borrowing costs, such as interest, can be used to purchase raw materials or fixed assets. One type of cost of borrowing is income-related, while the other is capital-related.

The weighted average cut-off rate for 10-year government loans fell from 7.61% last week to 7.53% on Tuesday. States could relax in the debt market as the average cut-off rate for their borrowing in the market fell sharply to 7.52%, the lowest level since mid-May and a fall of 15 points. basis compared to the previous week. During the month under review, the Center had also authorized Rs 31,500 crore in special support for capital expenditure to 10 states.

According to research by Icra Ratings, the difference between the yield on 10-year government securities and the yield on 10-year government debt has shrunk this week from 39 basis points to 37 basis points. The yield on the 10-year G-secs fell from 7.14% last Tuesday to 7.08%, reflecting the downward trend.

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Additionally, the weighted average threshold for 10-year government bonds fell from 7.53% last week to 7.45% today. As a result, the difference between the new 10-year G-Secs yield and the weighted average 10-year government debt yield fell from 39 basis points to 37 basis points.

As the cost has fallen by 10 basis points over the past two sessions, this is the third week in a row that government borrowing has fallen (bps). The yield fell 7 basis points to 7.67% last week. Six states raised 5,900 crore rupees on Tuesday at the weekly State Development Loan (SDL) auction, about 54% less than what was planned in their weekly borrowing schedule, according to a report. rating from Icra Ratings.

In Tuesday’s auction, the weighted average cut-off fell significantly by 15 basis points to 7.52%. The weighted average duration of securities also fell, the agency reported.

The weighted average duration fell from 15 to 13 years, and the break between durations also decreased, both attributed to the sharp drop in yields. The weighted average cut-off rate for 10-year government loans fell from 7.61% last week to 7.53% on Tuesday.

Despite a 9 basis point drop in the yield on the new 10-year G-Secs to 7.14% from 7.23% last Monday, the spread between the 10-year SDLs and the new 10-year G-Secs widened to 39 bps from 38 bps last week, the agency noted.

While Gujarat, Jammu and Kashmir, Madhya Pradesh, Manipur, Rajasthan, Sikkim and Tamil Nadu had indicated a combined loan of Rs 8,500 crore, they did not participate in the auction. The six states that made it into the market were Andhra, Assam, Bihar, Goa, Punjab and Telangana, which raised a total of Rs 5,900 crore in the form of state bonds.

For the fourth week in a row, starting with the announcement of the second half of fiscal deconcentration in early August, the auction fell short of expectations.

23 states raised a total of Rs 2.3 lakh crore this financial year, down 15% from the same period last year when it was Rs 2.7 lakh crore. Moreover, the actual issuance so far this financial year is 34% lower than the stated level of Rs 3.5 lakh crore.

The weighted average threshold for 10-year public debt fell from 7.66% last week to 7.61% at auctions held on Monday. The margin between the new 10-year G-secs yield and the 10-year weighted average public debt consequently narrowed slightly to 38 basis points from 39 basis points, according to the agency.

Governments have been forced to pay more for market borrowing despite a dramatic 40% drop in bond issuance as the weighted average interest rate hit a record 7.69% in the latest bond auctions. ‘State.

Six states (Andhra, Bihar, Haryana, Kerala, Punjab and Tamil Nadu) raised Rs 14,000 crore in Monday’s auction, 43% less than the Rs 24,500 crore that had been projected for this week. Since the distribution of the double tranche of fiscal decentralization on August 10 (Rs 1.2 lakh crore) against the amount released in July 2022, this was the third consecutive week of issuance lower than indicated.