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Nine State governments collectively borrowed ₹12,400 crore through State government securities (SGS) in the auction held on Tuesday against ₹16,830 crore indicated for this week in the Q2 FY24 auction calendar.
The weighted average cut-off of the SGS declined sharply by 8 basis points (bps) to 7.36 per cent in the auction from 7.43 per cent in the last weekly auction, amidst a dip in tenor to 13 years from 14 years, tightly clustered yields and inversion in parts of the yield curve, according to ICRA.
“The spread between the weighted average 10-year SGS and 10-year Government of India security (G-sec; 7.26 GS 2033) yield declined to 29 bps on July 18, 2023 from 33 bps last week,” the rating agency said in a note on the SGS auction.
Also read: 25 States likely to borrow over ₹2.37-lakh crore in Q2 FY24
Bank of Baroda’s economic research department, in a note on SGS auction, assessed that in FY24 till date (till 18 July 2023), States borrowed ₹2.1-lakh crore so far, compared with ₹1.45-lakh crore raised last year during the same period.
Cut-off yield
“States continued to prefer to borrow via long-term instruments. Only Tamil Nadu and Goa opted for the 10 year paper, and the cut-off yield settled at 7.35-7.38 per cent, versus 7.42 per cent last week.
“The benchmark 10 year G-Sec yield also fell by about 4 bps to 7.05 per cent in the same period following a dip in US 10Y yields,” Aditi, Economist, BoB, said.
In the case of longer tenured papers, 15 years paper was auctioned by three states — Andhra Pradesh, Kerala and Mizoram.
“The cut-off yield on this paper settled at 7.36 per cent. In this category, yields have declined by about 8bps compared with last week (J&K at 7.44 per cent last week).
Long tenure papers
“Tamil Nadu and Telangana opted for even longer tenure papers of 21 years and 23 years with cut-off yield at 7.34 per cent. In last week’s auction, only Kerala had opted for a 20 years paper, with a cut-off yield of 7.42 per cent,” the BoB Economist said.
She noted that yields on the shorter-end of the yield curve also inched down. This week 7Y paper (Bihar) was auctioned at 7.37 per cent, which was lower than last week (9 years paper of Haryana at 7.44 per cent).
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