On Tuesday, 17 state governments will sell bonds worth ₹50,206 crore, a record for a week, and 80% higher than the ₹27,810 crore earmarked for state issuances in their indicative calendar of borrowings, Reserve Bank of India data showed.
The largest borrowers include Maharashtra, Tamil Nadu, Uttar Pradesh, and West Bengal. Lok Sabha elections are due to be held from April 19 to June 1, the Election Commission said on Saturday.
“It is possible the sudden increase is to do with the elections, with the issuers stocking up on money because up till now GST collections and devolutions have been very robust. On both fronts, states have benefited, so I suspect it is more to do with the elections than anything else,” said Vikas Goel, managing director, PNB Gilts.
“The spreads between state bonds and central government bonds which were coming down dramatically might reverse (indicating an increase in borrowing cost for states),” he said.
Bank treasury executives said yields on papers maturing in 10 years and above could rise by 2-4 basis points in coming days, due to the unexpected borrowing rush by states. Bond prices and yields move inversely. A basis point is one-hundredth of a percentage point.The bond market has for the past month enjoyed a reprieve from Union government bond supply due to end of the Centre’s borrowing programme for FY24, while the issuance of bonds by states from January 2 to March 12 has been 23% lower than the indicative amount of ₹3.6 lakh crore.Some traders said insurance companies and pension funds, considered some of the regular buyers of state government bonds, may not deploy funds aggressively at Tuesday’s debt sale, which will lift yields as other investors place bids at lower prices.
