India's state borrowing costs spike to over six-year high as demand fades
MUMBAI: Borrowing costs for the most liquid part of India’s state government bond curve breached the 8% handle for the first time in over six years on Tuesday, according to traders, tracking a sharp spike in central government yields and weakening investor appetite. Indian states raised over 300 billion rupees ($3.15 billion) through a sale of bonds, of which 9- to 10-year state bonds were sold…
Mumbai observed a significant spike in borrowing costs for state government bonds in India, surpassing a six-year high of over 8% on Tuesday, according to traders. This surge in central government yields, coupled with a decline in investor interest, contributed to the rise. Throughout the sale of bonds, state governments raised approximately 300 billion rupees ($3.15 billion), with 9- to 10-year state bonds traded within the 8.03%-8.10% yield range.
This marks the first instance in over six years since April 2020 that yields on state government bonds with a 10-year maturity exceeded 8%. The yields on other ultra-long papers ranged between 8.14% and 8.21%. Harsimran Sahni, associate director and head of treasury at Anand Rathi Global Finance, attributed the increase in state debt yields to factors such as high crude oil prices, reduced liquidity conditions, and open market sales.
The previous week, states had issued bonds in the 7.91%-7.93% yield band. The benchmark 10-year 6.94% 2036 bond yield edged up to 7.36% on Tuesday from 7.19% the previous week. Sahni further predicted that the yield spread of 10-year state bonds over central government bonds would stabilize around 65 basis points in the near term, noting a compression from around 75 basis points over the past two months.
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