State government bonds rate soars to 11-month high of 7.19%

Despite near record low interest rates, the pricing of state government bonds skyrocketted to an 11-month high of 7.19 percent, at the latest auction of Rs 23,806 crore market borrowings on Tuesday. It can be recalled that at the first auction of state bonds on April 7, 2020, Kerala was forced to offer 8.96 percent on its Rs 6,000 crore market borrowing.

Analysts blamed such high cost of debt for the fear of banks and other investors of government debt of massive fiscal slippages due to the pandemic. The borrowing cost for the states at latest auction rose to an 11-month high of mid-April levels when it touched 8.96 percent. In fact, there has been a sustained increase in the cost of market borrowings for states since the past six weeks, even though the yields began to rise only after the budget announcement, yet only by 31 bps since then.