States are shelling out more for debt funds, with the weighted average cost for their debt auctions hardening by 9 basis points to touch 7.24 per cent, the highest level so far this fiscal, during the auctions on Tuesday.
Compared to the previous week, the cost has gone up by 9 basis points (bps).
From the first auctions in January, the cut-offs have been trending over 7 per cent.
The weighted average cut-off for states' 10-year debt auctions or state development loans as they are known, has hardened by 9 bps to 7.24 per cent at today's auctions as the drawdowns was 6 per cent more than indicated earlier, yet overall down by 12.3 per cent on annualised basis, ICRA chief economist Aditi Nayar said in a note.
As a result, the spread between the 10-year state debt and the benchmark G-Secs widened to 61 bps today from 58 bps last Tuesday, she said.
While 12 states raised Rs 21,200 crore today, 6 per cent higher than the indicated level for this week, six of them borrowed Rs 6,700 crore more than indicated led by Uttar Pradesh. It borrowed Rs 900 crore more than the amount indicated.
The share of longer tenor and 10-year debt has risen to 48 per cent so far in Q4 from 42 per cent and 29 per cent, respectively, in Q3 and Q2 of FY22.
At today's auction, Rs 11,500 crore or 54 per cent of the total issuance was in longer tenor debt, Rs 7,200 crore or 34 per cent was in 10-year instruments and the balance Rs 2,500 crore or 12 per cent was in shorter tenor.
In line with global trends, domestic yields have hardened since last week, reflecting the imminent rate hikes by the US Fed, increase in crude oil prices, firming of the domestic CPI inflation as well as the magnitude of supply expected in FY23, Nayar said.
Meanwhile, the 10-year G-Secs security (6.10, G-sec 2031) yield rose by 6 bps to 6.63 per cent today from 6.57 per cent last Tuesday.
The new 10-year paper, which was issued last Friday at a cut-off of 6.54 per cent (6.54 GSecs 2032), was partially devolved by the Reserve Bank of India (RBI) to the primary dealers, indicating weak demand for G-Secs at the prevailing yields. Its yield rose to 6.61 per cent today.
