India's state borrowing costs spike to over six-year high as demand fades

According to Business Recorder, borrowing costs on the most liquid portion of India's state bond curve climbed above 8% on Tuesday, the first such move in over six years, traders said. Indian states raised more than 300 billion rupees ($3.15 billion) through a bond sale, with 9 to 10 year papers placed at yields between 8.03% and 8.10%. Other ultra-long papers yielded between 8.14% and 8.21%. Indian states are targeting more than 3.6 trillion rupees in bond sales this quarter, following 5 trillion rupees raised in the earlier half of the fiscal year.

Traders attributed the move to a steep climb in central government yields alongside softer demand from investors. Harsimran Sahni of Anand Rathi Global Finance, who heads its treasury, cited costly crude, tighter liquidity and open market sales as drivers of higher state debt costs. The central government 10-year paper, the 6.94% 2036 issue, traded with a yield of 7.36% on Tuesday, against 7.19% a week earlier. Over the past two months, the gap between 10-year state and central bonds has fallen from roughly 75 basis points to around 65.