States' borrowing cost continues to rise for third consecutive week despite 52% less supply

The cost of market borrowings for states rose on Tuesday with the average pricing on their bonds rising by 5 basis points to 7.66 per cent despite the draw down was just about half of the indicated amount.

The states' borrowing cost has risen for the third consecutive week. Eleven states raised Rs 11,900 crore through state government securities (SGS) on Tuesday, which was 52 per cent less than the amount indicated for this week in the auction calendar.

In spite of lower supply, the weighted average cut-off rose by 5 basis points to 7.66 per cent from 7.61 per cent in the last auction. This was also despite the decline in the weighted average tenor to 11 years from 15 years, Icra Ratings said in a note.

The spread between the 10-year SGS and the new G-sec yield eased to 35 basis points from 38 basis points last week. With the lower cut-offs of the longer tenor SGS relative to the 10-year and below segment, the yield curve remained inverted, the agency said. Today's drawdown was only 48 per cent of the indicated amount, and also 2 per cent lower than the year-ago level.

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