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Business News/ News / India/  State government borrowing costs drop after cancellation of G-sec auction
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State government borrowing costs drop after cancellation of G-sec auction

15 state governments raised ₹17,783 crore at an average yield of 6.85%
  • Ten-year SDL yields have risen by 26 bps since the start of February 2021 and by 57 bps since the start of 2021
  • The 10-year state development loan yields have risen by 26 basis points since the start of February 2021 (iStock)Premium
    The 10-year state development loan yields have risen by 26 basis points since the start of February 2021 (iStock)

    MUMBAI : Borrowing costs of state governments fell by over 30 basis points at Tuesday’s auction of state development loans (SDL), a day after the Reserve Bank of India (RBI) cancelled a central government bond auction which was to be the last of the financial year.

    As many as 15 state governments raised 17,783 crore on Tuesday at an average yield of 6.85%, compared with 7.19% on 16 March.

    Ten-year SDL yields have risen by 26 bps since the start of February 2021 and by 57 bps since the start of 2021. However, they remain 75 bps lower than that at the start of fiscal year 2021.

    So far in the current fiscal, 28 states and two Union territories have cumulatively raised a total of 7.36 trillion through market borrowings, 30% more than in the corresponding period of 2019-20. The states have cumulatively so far utilized 89% of the scheduled market borrowings according to the indicative calendar for FY21, CARE Ratings said.

    “The uncertainty discount that was built in is going away. In February, yields had gone up without any shift in fundamentals. This happened because of the devolvement in government bonds and uncertainty in demand-supply dynamics in fiscal year 2022. However, the last two auctions were fully subscribed. Also, banks have to value their bonds before 31 March. It is therefore in everyone’s interest that bond yields are lower," said Dhawal Dalal, chief investment officer, fixed income, Edelweiss Asset Management.

    Yields on government securities had risen by 30 bps following the announcement that the government intends to raise additional borrowings of 80,000 crore till March and about 12 trillion for the next fiscal year. Besides higher borrowings, a spike in US treasury yields also spooked markets.

    Last week, the Reserve Bank of India (RBI) warned that rising bond yields could undermine the fragile global economic recovery, rendering most economies unable to tolerate high interest rates. In the state of the economy’s monthly report, RBI pointed to the stubbornly high yields in the Indian bond market, cautioning that rising yields could prompt central banks to boost bond buying.

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    ABOUT THE AUTHOR
    Gopika Gopakumar
    Gopika Gopakumar has worked for over 15 years as a banking journalist across print and television media. Her expertise lies in breaking big corporate stories and producing news based TV shows. She was part of the 2013 IMF Journalism Fellowship Program where she covered the Annual & Spring meetings of the International Monetary Fund in Washington D.C. She started her career with CNBC-TV18, where she also produced a news feature show called Indianomics and an award winning show on business stories from South India called Up South. She joined Mint in 2016.
    Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
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    Published: 23 Mar 2021, 07:53 PM IST
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