Borrowing costs

State borrowing costs rise as yields hit 7%: report

MUMBAI: Despite the liquidity injection of Rs 10,000 crore via the G-Sap route by the RBI last week and fewer states tapping bond markets, their cost of borrowing has headed north, the coupon having reached its highest level since mid-March at 7 percent.
With that, weighted average government bond yields have risen 44 basis points since the first auction of the fiscal year on April 8, according to analysis by Care Ratings.
The cost of borrowing across states and maturities jumped to its highest level since mid-March, reversing the decline seen in last week’s auction to 7% in today’s auction of securities. ‘state, up 24 basis points from last week, the agency noted.
Before the purchase of Rs 10,000 crore in the secondary government debt market on June 17 under the G-Sap (government securities acquisition programme), the average cost had fallen by 20 basis points to 6, 75% during the June 15 auction. fall in months.
The agency’s chief economist, Madan Sabnavis, and senior economist, Kavita Chacko, attribute the rise in yields to concerns over the path of inflation, with crude trading at a two-year high now . Firming inflation raises concerns about the RBI’s ability to maintain the accommodative monetary policy stance.
At 7%, the weighted average yield on government debt has risen 44 basis points since the first auction of the year on April 8. And that takes the spread between the 10-year government bonds auctioned today and the 10-year G Bonds – The yield in seconds is 86 basis points now.
Spreads rose by about 50 basis points in early April, reflecting firmer government bond yields, economists said, adding that yields were on the run amid concerns over an expected rise in the offer.
In today’s auction, 10 states raised a total of Rs 19,600 crore. While Maharashtra has accepted an additional amount of Rs 500 crore, the other states have only accepted the notified amount. With today’s borrowing, total state borrowing so far this fiscal year is 20% lower than the prior year period.
So far, 18 states and Delhi have raised Rs 1,23,950 crore against Rs 1,55,276 crore raised this time in the last fiscal year by 22 states and Delhi.
According to the tentative borrowing schedule, 26 states and Delhi were to mop up Rs 1.64,400 crore so far, but only 80% of that amount has been raised so far by 19 states and Delhi.
The lower quantum and reduced number of states tapping into the market so far can largely be attributed to their lower spending amid the pandemic as well as utilizing the leeway offered by the RBI through ‘a special drawdown facility and higher progress of ways and means both of which are priced at the repo rate.