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Credit rating agency ICRA in its latest report has said that states have been forced to pay through their nose at the weekly auction of their debt on October 10, 2023 with the weighted average interest rate payable soaring to the highest so far this fiscal at 7.68 per cent, 12 basis points (bps) more than the previous peak at the last auction. The prices shot up reflecting the overall higher risk averseness of investors with the rising interest rates along with higher demand, which rose by 14 per cent at the auction in spite of a jump in the average tenor to 15 years from 13 years last week.

According to the report, eight states raised Rs 9,600 crore through state government securities (SGS) on October 10, 2023, which is 13.6 per cent higher than the amount indicated for this week in the auction calendar. The sharp increase in the cut-offs of the 10-year and above issuances in the auction pushed the weighted average cut-off to 7.68 per cent, the highest in FY24 so far, up from 7.56 per cent last week. The weighted average tenor also increased to 15 years from 13 years last week.

It said as a result, the spread between the cut-off of the 10-year SGS and the 10-year G-sec (7.18 GS 2033) yield also rose to a 20-week high of 37 bps on October 10, 2023, from 33 bps last week. Cumulatively, the states have drawn down 28 per cent more funds than they had availed of in the same period last year at Rs 3,90,100 crore as of the latest auction on October 10, 2023, up from Rs 3,04,700 crore in the year-ago period.