The cost of debt funds to governments hit its highest level so far this financial year with the weighted average surpassing 7.16 percentage points in the most recent auctions, up 11 basis points from the previous year last week, reflecting yield tightening even for government securities.
The first quarter auction interest rate tightening comes amid the expected large debt supply from the US, as indicated in the fourth quarter of Rs 3.2 lakh crore, up from Rs 10000 crore states raised Rs 18,900 crore in the latest state development loan auction on Tuesday.
Aditi Nayar, a chief economist at rating agency ICRA, said the auction was just 2% below the amount shown for this week, among the highest draws so far in the financial year this main.
Although the weighted average term was unchanged at 12 years according to the most recent auction, the weighted average increased sharply by 11 basis points to 7.16% from 7.05%, reflecting strong supply strong in the quarter.
On the other hand, the 10-year weighted average loan tightened 10 basis points to 7.13% today from 7.03% last Tuesday, Nayar said.
Meanwhile, the benchmark 10-year G-sec yield (Gsec; 6:10 GS 2031) is up 4 basis points to 6.52% from the previous auction. As a result, the difference between the 10-year weighted SDL average yield and the 10-year G-sec yield increased to 61bp from 55bp, she added.
Nayar said the net issuance of SDL is expected to be Rs 5.8 lakh in FY22, down 10.9% from Rs Rs 6,5 lakhs in FiY 21.
The program saw a 15% drop from April 2021 to Jan 4, 2022, led by 21 states/UTs today, only 2% below the showing of the week in the revised auction calendar, as Punjab only partially accepts offers and Haryana did not accept her Rs 500 crore greenshoe option.
The revised Auction Schedule published by the RBI on 3 January fixed the loan markets of 26 states (except Manipur and Odisha) and two Union territories at 3.2 lakh crore, compared to 3.1 lakh crore Rs reported on 31 Dec.
The upward adjustment to the Q4 auction schedule is due to Madhya Pradesh, which increased borrowing by Rs 11,500 crore in the fourth quarter, down from zero in the schedule published on December 31. In addition, Andhra Pradesh said it will increase by Rs 25,500 crore in Q4, Rs 2,500 higher than previously reported.
Differences in actual and designated quarterly loan schedules by state, as well as revisions to designated loan schedules a few days after the initial announcement, suggest a less robust process for planning their borrowing needs, Nayar said usefulness and reliability of the 27-quarter loan schedule.
In today’s auction, Rs 10,700 crore or 56 crores of 10-year debt total and Rs 8,200 balance at longer maturities.
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