The spread between 10-year State Development Loan (SDL) and Government Security (G-Sec) of corresponding maturity narrowed to a four-week low of 93 basis points (bps) on March 9, 2021, from 95 bps last week, while remaining elevated, according to ICRA.

The weighted average cut-off of the 10-year SDLs eased to 7.14 per cent on March 9, 2021, from 7.18 per cent last week.

“This is somewhat sharper than the decline in the yield of the 10-year benchmark (5.85 per cent G-Sec 2030) to 6.21 per cent on March 9, 2021, from 6.24 per cent last Tuesday, leading to the spread between them narrowing to a four-week low 93 bps from 95 bps, respectively,” the credit rating agency said in a report.

One basis point is equal to one-hundredth of a percentage point. Spread here means the difference between the coupon rate at which 10-year SDLs were issued and the secondary market yield on the 10-year benchmark G-Sec.

State governments raise loans from the market which are called SDLs. They are dated securities issued through normal auction, similar to the auctions conducted for G-Secs/dated securities issued by the Central government

With the issuance of 10-year Gujarat SDL at 7.08 per cent and 10-year Sikkim SDL at 7.18 per cent, the inter-state spread in the 10-year SDLs increased to 10 bps from 8 bps last week, per the report.

Cash raised

Fourteen State governments raised ₹22,200 crore through State Development Loans (SDLs) on March 9, 2021, 28.3 per cent lower than the amount initially indicated for this week and a mild 1.0 per cent lower than the year-ago level, the agency said.

Nevertheless, in FY21 (till March 9, 2021), the cumulative SDL issuance stands at ₹7,36,800 crore, around 30 per cent higher than the year-ago level.

With three auctions left in March 2021, ICRA expects total gross SDL issuance to exceed ₹8-lakh crore in FY21.

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