States borrowing cost soars to 7.68%, the highest so far this fiscal

2023-10-10 16:14:02

States have been forced to pay through their nose at the weekly auction of their debt on Tuesday with the weighted average interest rate payable soaring to the highest so far this fiscal at 7.68 per cent, 12 basis points (bps) more than the previous peak at the last auction.

The prices shot up reflecting the overall higher risk averseness of investors with the rising interest rates along with higher demand, which rose by 14 per cent at the auction in spite of a jump in the average tenor to 15 years from 13 years last week.

Eight states raised Rs 9,600 crore through state government securities (SGS) on Tuesday, which is 13.6 per cent higher than the amount indicated for this week in the auction calendar, according to Aditi Nayar, the chief economist at Icra Ratings.

The sharp increase in the cutoffs of the 10-year and above issuances in the auction pushed the weighted average cut-off to 7.68 per cent, the highest in FY24 so far, up from 7.56 per cent last week, she said.

The weighted average tenor also increased to 15 years from 13 years last week.

As a result, the spread between the cut-off of the 10-year SGS and the 10-year G-sec (7.18 GS 2033) yield also rose to a 20-week high of 37 bps on Tuesday, from 33 bps last week, she said. Cumulatively, the states have drawn down 28 per cent more funds than they had availed of in the same period last year at Rs 3,90,100 crore as of the latest auction today, up from Rs 3,04,700 crore in the year-ago period.

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