State bond yield increased by high supply – State Bond Yields Harden on Heavy Supply and Weak Investor Demand

The yield on the state government’s bond increased due to the increased supply of the state government bond on Tuesday as well as the low demand of investors. The yield in the auction of the state government bond was 7.22 per cent and 7.34 per cent, as against 7.17 per cent and 7.20 per cent last week.

14 states raised Rs 50,500 crore through state bonds in the auction. Earlier, 17 states had raised around Rs 41,054 crore during the week. Interest difference between 10-year-old government bonds and 10-year-old state bonds increased to 47-48 basis points which was trading on 30-35 basis points during the last week. The yield of 10 -year -old benchmark government bond closed at 6.75 percent on Tuesday, which was 6.74 percent on Monday.

Market participants say that the supply of bonds in the market was very high but the demand from investors was less. Apart from this, due to the policy of life insurance corporation, people withdraw money and due to lack of cash, the banks were not making much purchasing aggressively.

Treasury chief Anshul Chandak at RBL Bank says, ‘The net difference between yield spread ie interest bonds was about 30-35 basis points which is now increased to 47-48 basis points.
Has gone. In the last two-and-a-half years, this difference has been at the level of about 30 basis points.

Chandak says, ‘This change is due to heavy supply and decrease in demand. LIC had to pay huge amount when the policy matured this month, which led to a decrease in net purchases. At the same time, the banks also did not look as aggressive in their purchase as they also faced cash shortage at the end of the year. As a result, the difference increased considerably.
Market participants said that the yield of corporate bonds in the secondary market on Monday increased and it could further increase.

A government bank dealer said, ‘It will definitely have an impact on corporate bonds. It is necessary to be vigilant due to less cash. According to the latest data of the Reserve Bank of India, till Monday, the bank’s net cash was reduced by Rs 1.09 lakh crore. Pure cash in the banking system has been in continuous losses for the last 11 weeks.

First Published – March 5, 2025 | 7:58 am IST