13 states raise close to Rs 30,000 crore

In the largest state government securities (SGS) auction of Q3FY26, 13 states collectively raised Rs 29,725 crore on December 2, marking a sharp rebound in issuance after weeks of restraint. The auction size was 41.5% higher than the Rs 21,000 crore initially indicated, reflecting renewed funding needs as the cushion from October’s double tranche of tax devolution has faded.

What did Aditi Nayar say?

“With issuance magnitude rising and dimming hopes of a rate cut from the MPC, SGS cut-offs have hardened despite a slight decline in tenor,” said Aditi Nayar, chief economist at ICRA.

Cut-offs in the 10 to 12 year segment came in between 7.17% and 7.49% against the 10 year G -Sec at 6.52%, leaving spreads in a wider 65 to 97 basis point range. The 10-year G-Sec itself softened from 6.56% to 6.51% during the day, with the market expecting RBI’s possible secondary market purchases of the 10-year benchmark.

“Cut-offs for 10-year papers revealed wide interstate disparities with Bihar, Meghalaya and Punjab priced at 7.40–7.49%, while Tamil Nadu and Rajasthan managed lower levels of 7.20–7.24%. This pushed the inter-state spread to an a typical 20–29 basis points, highlighting how investors are increasingly differentiating states by fiscal strength,” said Nayar. “The surge in supply coincided with firm cut-offs, highlighting rising borrowing costs. Weighted average SGS yields climbed to 7.39%, up from 7.29% last week, even as the average tenor dipped marginally to 14 years,” she added.

What did Venkatakrishnan Srinivasan say?

“Persistent firmness in long-tenor SGS is becoming a concern,” said Venkatakrishnan Srinivasan, Founder of Rockfort Fincap LLP further adding that elevated yields may push states toward shorter maturities, raising rollover risks, while reduced participation from long-duration investors is prompting markets to demand clearer premiums for duration and fiscal credibility.

Table