The RBI had announced that an auction of government bonds (State Development Loans, or SDLs) would take place on Tuesday. These were issued by 12 state governments, totaling Rs 20,659 crore. The terms of these bonds ranged from five years to 20 years.
The largest borrower, the state of Uttar Pradesh (at Rs 3,000 crore) sold its 10-year bonds at a threshold yield of 7.24%. Among the other states that have opted to issue a 10-year paper, West Bengal has set the price of its bonds at a yield limit of 7.23% against 7.14% last fortnight. The 10-year Bihar was at 7.24% and Goa & Manipur sold at 7.23%. On January 4, the 10-year yield was 7.10%. As a result, the overall cost increased by 0.14%.
“Bond yields are climbing higher due to inflation as well as fiscal concerns. The borrowing program for next year is being worked out. And, with redemptions of around Rs 4 lakh crore, there will be a big borrowing program again,” said Bank of Baroda chief economist Madan Sabnavis, noting that oil prices were adding to inflationary pressures.