The weighted average cut-off at the biggest weekly auction of State Government Securities (SGS) so far in FY24 rose 7 basis points (bps) on Tuesday due to huge supply of paper.

Sixteen States and one Union Territory cumulatively mopped up ₹50,206 crore at via auction of SGS.

The amount that the 16 States and one UT collectively raised on Tuesday is substantially higher than the ₹27,810 crore they had planned to mop up, going by the Indicative Calendar of Market borrowings.

The weighted average cut-off of the SGS climbed to 7.45 per cent on March 19, 2024, from 7.38 per cent last week, ICRA said in a note.

This was despite a mild decline in the weighted average tenor of SGS’ to 15 years from 16 years during the same period.

“The spread between the cut-off of the 10-year SGS and the 10- year G-sec (7.18 GS 2033) yield also increased mildly to 36 bps on March 19, 2024, from 35 bps last week,” said Aditi Nayar, Chief Economist, Head – Research and Outreach; Neetika Shridhar, Assistant Vice-President, and Jaspreet Kaur, Senior Analyst, said in the note.

Bank of Baroda Economist Sonal Badhan observed that in FYTD24 (till 19 March 2024), States have borrowed ₹9.28-lakh crore so far (planned for FY24: ₹10.88-lakh crore), compared with ₹7.17-lakh crore borrowed last year during the same period.

With one more auction round left, liquidity will continue to be pressurised, she added.

Badhan noted that yield on the 10-year government security (G-Sec) rose by 6 bps from 7.03 per cent on March 12 to 7.09 per cent on March 19. However, with pressure on SGS’ being greater than G-Sec, the spread between the two has increased to 35-41bps from 33-38 bps last week.

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