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The weighted average cut-off yield of 10-year State Development Loans (SDLs) hardened by 9 basis points (bps) to 7.24 per cent at the auction on Tuesday from 7.15 per cent in the last auction on concerns around inflation and uncertainty as to how much the government will borrow in FY23.
The spread between the weighted average 10-year SDL and old 10-year G-sec (coupon rate: 6.10 per cent) yield was 61 bps on Tuesday (58 bps last Tuesday) and that with the new 10-year G-sec (6.54 per cent) was mildly higher at 62 bps, according to ICRA.
“In line with global trends, domestic yields have hardened since last week, reflecting the imminent rate hikes by the US Fed, increase in global oil prices, firming of the domestic CPI inflation, as well as the magnitude of supply expected in FY2023,” the rating agency said in a report.
10-year GSec yield up
ICRA noted that the old benchmark 10-year G-Sec yield rose by 6 bps to 6.63 per cent from 6.57 per cent last Tuesday.
Moreover, the new 10-year paper, which was issued on last Friday at a cut-off of 6.54 per cent (6.54 GS 2032), was partially devolved by the Reserve Bank of India to the primary dealers, indicating weak demand for G-sec at the prevailing yields. Its yield had risen to 6.61 per cent on Tuesday.
Twelve State governments raised ₹21,200 crore through SDLs on January 18, 2022, about 6 per cent higher than the ₹ 20,000 crore that was indicated for this week in the revised Q4 FY2022 auction calendar.
“Six states borrowed ₹. 6,700 crore today, despite not having indicated their participation in the auction calendar; UP borrowed ₹. 900 crore more than indicated,” ICRA said.
The weighted average SDL cut-off increased by 4 bps to 7.11 per cent from 7.07 per cent in the last auction, with an increase in tenor to 12 years from 11 years.
Madan Sabnavis, Chief Economist, Bank of Baroda, said: “Bond yields are spiking upwards on concerns of inflation (oil prices going up contributing to this) as well as budgetary concerns. The borrowing programme for next year is under focus and with redemptions being around ₹ 4-lakh crore, there will once again be a large borrowing programme.”
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