Long-tenor SDLs see minor hardening in yields

On Tuesday, 11 states accepted Rs 11,100 crore against the notified amount of Rs 13,850 crore.

Yields on long-tenor state development loans (SDLs) saw slight hardening this week as 10-year papers were auctioned in the range of 6.40-6.50%, compared to 6.33% seen last week. Dealers say that uptick in the central government securities yield in recent times as well as more number of long-tenor SDLs hitting the market this week could have led to the minor hardening.

On Tuesday, 11 states accepted Rs 11,100 crore against the notified amount of Rs 13,850 crore. While Tamil Nadu was the only state to have issued a 10-year paper at 6.33% last week, this time Goa, Karnataka, Uttar Pradesh and West Bengal auctioned their 10-year papers in the range of 6.40-6.50%. Tamil Nadu and Gujarat did not accept any amount during Tuesday’s auction.

Siddharth Shah, head of treasury at STCI Primary Dealer, said the benchmark yield has moved up in recent times with monetary policy announcement getting closer. “There is an expectation in the market that rate cut, if any, may not be significant this time due to concerns over inflation. As a result, some of the hardening of G-Sec yields had its impact on SDL yields as well this week. Also, more number of SDLs were put up for auction in the 10-year category this time compared to last week. Few of the states may have decided not to borrow at higher yields and that is why the total accepted amount in the auction was lower than the notified amount,” Shah said.

According to a CARE Ratings report, the weighted average interest rate of state government dated securities (across states and tenures) auctioned on July 28 at 5.93% was eight basis points higher than of week ago. “There has been a 181 bps decline in the interest rates of state government securities since the first auction of the current fiscal year. There has been a 146 bps decline in the weighted average yield of 10 year SDLs in the last 4 months. The spread between the 10 year G-Secs and SDLs has also narrowed from 100 bps in mid-May to 50 bps in the 3rd week of July,” the report stated.