SDL yields continue to remain lower ahead of monetary policy announcement by RBI

By: |
August 5, 2020 4:20 AM

For instance, Andhra Pradesh received a cut-off of 6.55% for its 15-year paper while its 18-year paper saw a relatively lower cut-off of 6.50%.

Experts indicate that despite the expectation of a status quo policy, many long-term investors want to lock-in their investments at current yields so as to avoid the possibility of a surprise rate reduction.Experts indicate that despite the expectation of a status quo policy, many long-term investors want to lock-in their investments at current yields so as to avoid the possibility of a surprise rate reduction.

Yields on long tenor state development loans (SDLs) continued to remain lower ahead of the monetary policy announcement with 10-year papers getting auctioned in the range of 6.40-6.46% during Tuesday’s auction.

Dealers say that long-term investors are likely to have bid aggressively for papers belonging to some of the states.

For instance, Andhra Pradesh received a cut-off of 6.55% for its 15-year paper while its 18-year paper saw a relatively lower cut-off of 6.50%.

Similarly, Haryana issued 20-year paper at 6.48% which was almost at par with the yield on 10-year papers of other states. On Tuesday, 11 states picked up a total of Rs 13,400 crore against the notified amount of Rs 12,400 crore.

Experts indicate that despite the expectation of a status quo policy, many long-term investors want to lock-in their investments at current yields so as to avoid the possibility of a surprise rate reduction.

Siddharth Shah, head of treasury at STCI Primary Dealer, indicated that the relatively lower yields on longer tenor paper shows significant appetite by long-term investors that include insurance firms, provident fund as well as banks.

‘Moreover, this is an auction just ahead of the monetary policy announcement. Although there is anticipation in the market that there won’t be any rate cut this time, investors do not want to miss out on the higher carry in case there is a surprise rate reduction. That could be the reason why we saw some aggressive bidding in SDLs,” Shah said.

A Care Ratings report says that faced with revenue shortfalls due to the lockdown of the last four months, state governments have been increasingly resorting to market borrowings to meet their funding requirements.

“As per the proposed market borrowings calendar, the state government borrowings in H1 2020-21 at Rs 3.45 lakh crore is likely to be 53% more than that in H1 2019-20,” the report said.

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