Spreads on long-tenor state development loans (SDLs) narrowed by eight basis points compared to last week, with a 10-year paper getting auctioned for just 6.33% on Tuesday. While the benchmark yield has remained flat in the same period, SDL yields have been falling in recent times.
For instance, a 30-year SDL was auctioned for 6.55% last week while a similar tenor paper was auctioned for just 6.49% this week. Experts indicate that fund flows from institutions are aiding the compression in spreads.
Manish Wadhawan, founder and managing partner at Serenity Macro Partners, said there was significant liquidity in the system and large institutions are looking to deploy their assets in good quality papers that are also providing attractive yields. “We are also seeing good quantum of funds that are available for reinvestment. Large institutions like insurance players, provident funds are deploying these funds into high grade SDLs in recent times as people are not comfortable beyond the usual 10-15 names in the corporate bond market. This is helping in narrowing the spreads of SDLs,” Wadhawan said.
On Tuesday, five states picked up Rs 10,000 crore through the auctions against the notified amount of Rs 9,000 crore. Tamil Nadu picked up 10-year money for just 6.33% against 6.41% it paid last week for a similar tenor paper.
According to a Care ratings report, 24 states and one Union Territory have cumulatively raised Rs 2.04 lakh crore via market borrowings in the current financial year, which is a 72% rise from the borrowings in the corresponding period of 2019-20.
“There has been a notable increase in the market borrowings across states in the current financial year. Eighteen states out of 24 that have raised funds though the issue of SDLs during the period April 07- July 21 have seen a sizeable increase their issuances when compared with the corresponding period of 2019-20. The states that has seen a marked increase in their borrowings include Maharashtra, Tamil Nadu, Karnataka, Haryana, Uttar Pradesh, Andhra Pradesh, Rajasthan, West Bengal, Kerala and Telangana,” the report stated.
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