Mumbai, Feb 8 (PTI) Ahead of the monetary policy announcement on Thursday wherein the MPC is likely to begin liquidity tightening with a marginal reverse repo hike, states on Tuesday had to pay a higher price to bond investors as the weighted average cut-off rate jumped by a hefty 41 basis points to 7.24 per cent.
In the previous auction of State Development Loans (SDLs) last Tuesday, the cut-off was only 6.83 per cent.
However, the weighted average cut-off for the 10-year state debt issuance hit a record 7.29 per cent on Tuesday. This is 8 bps higher than 7.21 per cent seen last week and the spread between the 10-year G-secs yield and SDL widened to 48 bps from 38 bps.
On Tuesday, the 10-year G-secs yield eased to 6.81 per cent compared to 6.83 per cent last week.
At the latest auctions, nine states raised Rs 14,200 crore, which is 48 per cent lower than the indicated level for the week at Rs 27,500 crore. As many as 11 of the 19 states, which had initially indicated a borrowing of Rs 12,300 crore, did not participate in today's auction.
Additionally, Maharashtra lowered its drawdown by Rs 1,000 crore and Mizoram by Rs 100 crore. Manipur borrowed Rs 60 crore even though it did not initially indicate its participation.
The spread between the 10-year SDLs and the benchmark 10-year G-secs widened to 48 bps from a low 38 bps last week. The weighted average cut-off hardened by 41 bps to 7.24 per cent, led by an increase in tenor, according to a note by Icra Ratings.
The amount raised in five of the six weekly auctions in the fourth quarter of this fiscal so far has been lower-than indicated. The Centre had early last month released an enhanced tax devolution of Rs 95,100 crore to states along with GST compensation grants of Rs 18,000 crore and ad-hoc settlement of Rs 35,000 crore of integrated GST.
Cumulatively, 29 states, except Odisha, have borrowed Rs 5,73,600 crore so far in FY2022. This is nearly 20 per cent lower than the indicated Rs 7,18,300 crore and 12 per cent lower than the year-ago level of Rs 6,49,500 crore.
In Tuesday's auction, Rs 7,000 crore or 49 per cent of the total issuance was raised in longer tenors, Rs 3,700 crore or 26 per cent of the total issuance in the 10-year bucket and the remaining Rs 3,600 crore or 25 per cent in shorter tenors.
The Monetary Policy Committee (MPC), which began its meeting on Tuesday, is expected to move towards liquidity tightening amid rising inflationary trends.
