Yield on 10-yr state govt bonds eases by 26 bps after RBI's intervention

The weighted average cut-off for the 10-year SDLs eased by a sharper 26 bps to 6.63 per cent on October 13, 2020 over the previous weekly auction

The yield on 10-year state government loans (SDL) eased by 26 basis points at auction, showing the effect of Reserve Bank of India’s (RBI’s) steps to enhance liquidity for these bonds. 

The weighted average cut-off for the 10-year SDLs eased to 6.63 per cent on October 13, over the previous weekly auction. 

On October 9, the RBI unveiled measures to provide liquidity, boost dem­and for government bo­nds, and cool SDL spre­ads. The central bank will also conduct Open Market Operations in SDLs. This subsequently led to a decline in the G-Sec yields and SDL cut-offs.

Rating agency ICRA said state governments raised Rs 19,300 crore through SDLs in the auction held on October 13, which is 28.7 per cent higher than the initially indicated amount for this auction. It was 29.2 per cent higher than the year-ago level.

According to the RBI’s indicative calendar for market borrowings, states plan to raise about Rs 2.02 trillion in the October-December period. The combined market borrowings of 27 states and two Union Territories rose by 57 per cent to Rs 3.53 trillion in the first half of the current fiscal year over the same period in FY20.

The lockdown and the resultant restrictions imposed on the conduct of business and commercial activity over the past six months has led to a sharp decline in the revenues of states, pressuring their finances. 

States have been increasingly resorting to market borrowings to meet their funding requirements, according to CARE Ratings. During April-September 2019, states had raised Rs 2.25 trillion.