The cost of debt-funds for the states has touched the highest level so far this fiscal with the weighted average cut-off crossing the 7.16 percentage points at the latest auctions, up 11 bps over the past week, reflecting the hardening yields even for the government securities.

The hardening of the rates at the first auction of the quarter comes in the wake of the expected large supply of debt from the states, as indicated for Q4 at Rs 3.2 lakh crore, up by Rs 10,000 crore.

Nine states on Tuesday raised Rs 18,900 crore at the latest auction of state development loans. The auction was just 2 percent lower than the indicated amount for this week, which is among the highest drawdowns so far this fiscal year, Aditi Nayar, the chief economist at the rating agency Icra, said in a note.


Even though the weighted average tenor remained unchanged at 12 years in line with the last auction, the weighted average cut-off rose sharply by 11 bps to 7.16 percent from 7.05 percent, reflecting a large supply for the quarter.

weighted average cut-off for the 10-year loans hardened by 10 bps to 7.13 percent today from 7.03 percent last Tuesday, Nayar said. Meanwhile, the benchmark 10-year G-secs (G-sec; 6:10 GS 2031) yield rose by 4 bps to 6.52 percent from the last auction. Accordingly, the spread between the 10-year weighted average SDL and 10-year G-sec yield widened to 61 bps from 55 bps, she added.

Gross SDL issuance is pegged at Rs 7.9 lakh crore in FY22, just 1 percent lower than the FY21, while the net issuance is estimated at Rs 5.8 lakh crore for FY22, which is 11 percent lower than the last year, adjusting for the expected redemptions of Rs 2.1 lakh crore in the current fiscal. The net SDL issuance is projected at Rs 5.8 lakh crore in FY22, a decline of 10.9 percent from Rs 6.5 lakh crore in FY21, Nayar said. The issuance was On the other hand, the down 15 percent during April 2021 January 4, 2022, led by 21 states/UTs today, which was just 2 percent lower-than indicated for the week in the revised auction calendar as Punjab only partially accepted bids and Haryana did not accept its Rs 500 crore greenshoe option. The revised auction calendar issued by the RBI on January 3 has pegged the market borrowing by 26 states (except Manipur and Odisha) and two Union territories at Rs 3.2 lakh crore, up from Rs 3.1 lakh crore indicated on December 31. The upward revision in the Q4 auction calendar is on account of Madhya Pradesh.