Average cut-off yield spikes by 12 bps to 7.84% at state bond action

The weighted average cut-off yield shot up by 12 basis points to 7.84 per cent at state government bond auction on Tuesday, as some states raised large amounts through long-tenure instruments.

The weighted average cut-off was 7.72 per cent in the last bond auction held on October 11 this year.

Bond market dealers said West Bengal and Uttar Pradesh raised amounts through bonds with 15-17 year maturity with cut-off yield above 7.90 per cent. The pricing is expected to remain under pressure in the near term.

Fourteen state governments raised Rs 25,200 crore through state government securities (SGS). This was three per cent higher than the Rs 24,500 crore indicated for this week in the Q3FY23 auction calendar, rating agency Icra said in a statement.

The 10-year central government bond (7.26% GS 2032) yield increased mildly to 7.44 per cent today from 7.43 per cent last Tuesday. The weighted average cut-off of the 10-year state government bonds jumped to 7.83 per cent from 7.73 per cent in the same period. Accordingly, the spread between the weighted average cut-off of 10-year SGS and the 10-year G-sec yield increased to 39 bps from 30 bps in the same period.

Overall, the cumulative SDL issuance of Rs 3.5 trillion by 22 state governments and two Union Territories (UTs) during October 25, 2022. This was six per cent lower than the year-ago level (Rs 3.7 trillion).

Icra said Haryana, Rajasthan, UP and West Bengal raised Rs 4,500 crore above the amount that they had indicated in the Q3FY23 auction calendar. Additionally, Meghalaya borrowed Rs 300 crore today, despite not having indicated its participation in the auction calendar for this week.

In contrast, Karnataka, Punjab and Uttarakhand did not participate in today’s auction, even though they had indicated a combined borrowing of Rs 2,500 crore for this week. Goa, Gujarat and Madhya Pradesh borrowed Rs 1,600 crore less than indicated.

Tamil Nadu raised Rs 4,000 crore through 10-year paper (Rs 2,000 crore) and 20-year paper (Rs 2,000 crore). However, it did not accept any amount in the re-issued 7.24 per cent Tamil Nadu State Developmen Loan 2051.