As six states — Andhra Pradesh, Karnataka, Gujarat, Punjab, Rajasthan and Bihar — tapped the market on Tuesday for borrowing Rs 16,000 crore in the first weekly auction for January-March, the spread between the yields on state development loans (SDL) and the Centre’s G-sec (government securities) widened to over 50 basis points (bps). With states anticipating higher expenditure and having proposed record borrowing of Rs 4.13 lakh crore in the January-March quarter (Q4), the yield spread between the 10-year state governments’ loans and the benchmark 10-year G-sec is expected to widen further amid concerns of higher supply of dated securities, experts said.
“The Q4 FY24 SDL calendar implies that there will be a significant supply of duration, when seen in conjunction with G-sec supply…the gross supply from states and Centre is likely to be concentrated in the 15-year to 50-year segment, at around 35% of total Q4 FY24 supply. This is likely to result in steepening of the curve. Moreover, the large supply for states will further widen the spreads between SDLs and G-sec,” Gaura Sen Gupta, Economist, IDFC First Bank said.
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