Government borrowing costs start to fall

The costs of public debt begin to decline

Business News: Government borrowing costs start to fall.

With large borrowing states not coming to market or withdrawing less than indicated amounts, states are finally seeing the cost of their debt drop, with the weighted average interest rate dropping 18 basis points to 6.74 at auction. government bonds on Monday. Last week, the rate stood at 6.92%.

At Monday’s level, the rate difference between G-Secs (government bonds) and government development loans is still as high as 77 basis points. While the weighted average interest rate is 6.74% for states, the Center pays only 5.97% for 10-year bonds, according to an analysis by Icra Ratings chief economist Aditi Nayar.

The cumulative issuance amounts to Rs 59,700 crore, down 44.3% from the Rs 1.07,300 crore initially indicated for this period on an annualized basis, Nayar said.

The steep drop during Monday’s auction was due to the fact that Goa, Gujarat, Himachal Pradesh, Punjab, Telangana, Uttar Pradesh and West Bengal did not show up despite indicating they were planning to raise Rs 9,600 crore.

Bihar, Kerala and Sikkim, which initially refused to participate in the auction, together raised Rupees 4,000 crore. Maharashtra, Rajasthan and Tamil Nadu borrowed 2,500 crore of rupees.

With a decline in weighted average duration to 13 years on Monday from 19 years last week, the weighted average cost of interest for states dropped 6.74% from 6.92 per cent.

During the auction, Rs 4,500 crore or 39 percent of the issuance was in the 10-year bucket and longer durations of 11-25 years, while Rs 2,500 crore or 22 percent was in the 5-6-year bucket.

As a result, the spread between the 10-year weighted average government debt and the G-Sec yield stood at 77 bps, the same as on 11 May. With a considerable decline in the weighted average duration of 13 years from 19 years last week, the weighted average cost decreased 18 basis points to 6.74%.