Twelve state governments and one Union Territory (UT) raised Rs. 206 billion through state development loans (SDLs) on June 29, 2021, nearly 49% higher than the indicated level of Rs. 139 billion for this week. Moreover, today’s issuance was a substantial 71.7% higher than the year-ago issuance of Rs. 120 billion.
Overall, in Q1 FY2022, the gross SDL issuance stood at Rs. 1,446 billion, nearly 19% lower than the Rs. 1,783 billion that had been indicated by the Reserve Bank of India (RBI) in the market borrowing calendar of states for this quarter. The SDL issuance was sharply lower than indicated in April 2021 (Rs. 92 billion vs Rs. 487 billion) reflecting the additional tax devolution of Rs. 450 billion transferred to the state governments in late-March 2021, in excess of the FY2021 Revised Estimate of Rs. 5,500 billion. The SDL issuance in May 2021 (Rs. 506 billion) was moderately lower than indicated (Rs. 587 billion) while the issuance in June 2021 (Rs. 849 billion) exceeded the indicated amount (Rs. 710 billion) by 19.6%.
On a YoY basis, the gross SDL issuance contracted by 13.6% in Q1 FY2022 from Rs. 1,673 billion in Q1 FY2021, contracting by a sharp 84.6% in April 2021 and then expanding by 5.4% and 41.2%, respectively, in May 2021 and June 2021.
In today’s auction, Rs. 91 billion or ~44% of the total debt was issued in 11-35-year tenors and Rs. 85 billion (~41%) in the 10-year bucket. The balance Rs. 30 billion or 15% of the total issuance was in 5-7 year papers issued by two states. The weighted average cut-off of the 10-year SDLs stood at 6.92% today, 6 bps higher than 6.86% last week. The interstate spreads between 10-year SDLs also widened today to a high 12 bps, with the 10-year Gujarat SDL at 6.88% and 10-year Manipur SDL at 7.00%.
The yield for the 10-year benchmark government security (G-sec; 5:85 GS 2030) increased by 2 bps to 6.04% today from 6.02% last week. Accordingly, the spread between the 10-year weighted average SDL cut-off and the G-sec yield widened to a quarter-high 88 bps in today’s auction from 83 bps last week.
The aggregate weighted average cut-off of SDLs eased to 6.99% today from 7.00% last week, despite a mild increase in the weighted average tenor to 16 years from 15 years during the same period.
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