MUMBAI: On Tuesday, when 17 states together would borrow a little over Rs 50,000 crore through auction of bonds, it would be the highest such borrowing amount on a single day either by central or state govts in India’s bond market history. The record high amount, however, is unlikely to disrupt the prevailing yields in the market given the way RBI and central govt together have managed the gilt auctions this fiscal, bond dealers and fund managers said.
In recent times, the highest amount raised from a single-day gilt auction was on Feb 2 this year when central govt borrowed Rs 39,000 crore.
On Friday, March 15, RBI announced that 17 state govts together would borrow Rs 50,206 crore through auctions on Tuesday, March 19. Of the 17, at Rs 8,000 crore, UP is slotted to be the biggest borrower, followed by Karnataka, Maharashtra and Tamil Nadu, at Rs 6,000 crore each.
The higher borrowing amounts by state govts came in the absence of borrowing by central govt after Feb 15 as there is robust long-term domestic investor demand owing to jump in investable flows towards the end of the fiscal.
This is reflected in the spread between yields on state govt bonds and central govt bonds (gilts). From a spread of more than 50 basis points (100bps = 1 percentage point) on 10-year state bonds over 10-year gilts about two months ago, it has come down to 35bps. And this happened despite higher borrowing by state govts.
This difference could get narrower. “Considering the softening outlook of the interest rate and history of much lower state borrowing during the first quarter of the fiscal, the spread between state govt bonds and gilts is expected compress over the next quarter,” said Ram Kamal Samanta, senior VP – investment, Star Union Dai-ichi Life Insurance.
