States breathed easy in the debt market as the average cut-off on their market borrowings dipped sharply to 7.52 per cent, down 15 basis points from last week to the lowest level since mid-May.
This is the third consecutive week of falling cut-off, as in the last two sessions the cost has come down by 10 basis points (bps). Last week the yield declined by 7 bps to 7.67 per cent.
At the weekly auction of State Development Loans (SDLs) on Tuesday, six states raised Rs 5,900 crore, which is nearly 54 per cent lower than indicated in their borrowing calendar for the week, Icra Ratings said in a note.
The weighted average cut-off eased sharply by 15 bps to 7.52 per cent at Tuesday’s auctions. Similarly, there was also a decline in the weighted average tenor of the securities, the agency said.
It attributed the steep fall in yields to a fall in the weighted average tenor which declined to 13 years from 15 years as also a fall in cut-off across tenors.
The weighted average cut-off of the 10-year state loans eased to 7.53 per cent on Tuesday from 7.61 per cent last week.
However, the spread between the 10-year SDLs and new 10-year G-Sec (government securities) yields inched up to 39 bps from 38 bps last week, despite a 9 bps fall in the yields on new 10-year G-Secs yield to 7.14 per cent from 7.23 per cent last Monday, the agency added.
The six states that went to the market are Andhra, Assam, Bihar, Goa, Punjab, and Telangana, which collectively raised Rs 5,900 crore, while Gujarat, Jammu and Kashmir, Madhya Pradesh, Manipur, Rajasthan, Sikkim, and Tamil Nadu did not participate in the auction, even though they had indicated a combined borrowing of Rs 8,500 crore.
The auction was lower-than-indicated for the fourth consecutive week, since the release of the double tranche of tax devolution in early August.
Cumulatively 23 states raised Rs 2.3 lakh crore so far this fiscal, which is 15 per cent lower than the year-ago level when it was Rs 2.7 lakh crore and the actual issuance so far this fiscal is 34 per cent below the indicated level of Rs 3.5 lakh crore.