Maha, Tamil Nadu bonds yield less than G-secs

Mumbai: Three-year bonds sold by Maharashtra and Tamil Nadu on Tuesday yielded by up to 18 basis points lower than similar-maturity central government securities. Investors are now rushing to buy state bonds, helping lower borrowing costs for states.“Investors are now rushing for safety, preferring state bonds to corporate bonds,” said Ritesh Bhusari, deputy general manager — treasury at South Indian Bank. “Higher demand for state government papers drove yields down, matching similar-maturity central government bonds. This would lower states’ borrowing costs.”The Reserve Bank of India conducted a state bond auction Tuesday for 12,000 crore including seven states. Maharashtra and Tamil Nadu raised Rs 2,000 crore and Rs 1,000, respectively, crore at 4.63 per cent.A central government bond series carrying 8.83 per cent coupon yielded 4.81 per cent in the secondary market Tuesday, show data from the Clearing Corporation of India. Those papers will mature in November 2023. Similarly, another series maturing the same year in December yielded 4.78 per cent.To be sure, another two sets of central government bonds maturing in May and June, 2023, are still trading 13-18 basis points lower than Maharashtra and Tamil Nadu bonds auctioned Tuesday.Maharashtra originally wanted to raise only Rs 1,000 crore for which it received bids for nearly Rs 7,000 crore. It accepted Rs 2,000 crore. In the whole auction, states received bids three to eight times higher than their actual size.“A further rise in demand for state government bonds will likely pull down yields, outpacing those central government securities that are still trading higher,” said Ajay Manglunia, managing director and head of fixed income at JM Financial.One of the top three mutual funds in India has directed its money managers to look for safe investment options first.“We don’t mind sacrificing a few basis points in terms of investment returns, but investors’ money should be protected fully,” said a fund manager dealing with thousands of crores of public money. The fund has increased its share of investments in central and state government papers.Several mutual funds are doing the same line, helping reduce state government funding costs at a time when they need it the most to fight the pandemic.The benefits of rate transmission are more visible for state bonds than at the lending counters of high-street banks. At the beginning of June, the Clearing Corporation of India’s (CCIL’s) SDL Index yielded 6.44 per cent, the lowest since December 23, 2008. The gauge however inched up about 13 basis points to 6.57 following rise in the benchmark yields.

from Economic Times https://ift.tt/2BRZYa3