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Auction Spotlight: RBI’s State Bond Results Fuel Speculation and Strategy Shifts

Updated: April 29, 2025 18:10

Image Source: MoneyControl
Reserve Bank of India (RBI) has published the entire auction result for the recent State Government Securities (State Development Loans, SDLs), showing high participation and competitive pricing as states step up FY26 fundraising.
 
Key Highlights:
  • Auction Details: The latest auction, conducted on April 15, 2025, witnessed several states raising a sum of ₹11,805 crore through competitive bidding. The cut-off yields across different tenors ranged around 6.43%, with the cut-off price being ₹100.30, reflecting good appetite from institutional investors despite recent volatility in the market.
  • Increasing Borrowing Demand: The RBI has raised the amounts of scheduled state bond auctions in recent months, some going up to ₹52,120 crore. Karnataka led the most recent round with a raise of ₹7,000 crore, echoing states' increasing capital needs for infrastructure and welfare schemes.
  • Yield Trends: Cut-off yields for 10-year state bonds have recently ranged between 7.17% and 7.27%, with the latest auction yields stabilizing slightly lower due to improved liquidity in the banking system. The RBI’s ongoing liquidity support, including open market operations (OMOs), has helped ease upward pressure on yields.
  • Investor Participation: Both competitive and non-competitive bids were accepted via the RBI’s E-Kuber platform, with up to 10% of the notified amount reserved for eligible individuals and institutions. Strong demand from banks and mutual funds underpinned the successful auction outcome.
  • Market Context: Measures of RBI injecting liquidity and also the likely transfer of the dividend to the government are anticipated to keep the yields under check with analysts already envisaging that benchmark 10-year G-Sec yield would potentially decline into the 6.20–6.30% zone within coming months.
State government security investor confidence that persists is evident by the results of auctions and favoring the financial plans of the states along with overall economic expansion.
 
Sources: SBI DFHI, Business Standard, The Hindu Business Line

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