Here's how Telangana bifurcation impacted RBI bond auction
With the latest yield, according to bond traders, the state beat West Bengal that was offering the highest yield in earlier auctions. The eastern state is now ranked second with a cut-off yield at 9.72 percent in the state loan auctions dated July 31.
August 02, 2013 / 08:36 IST
Saikat Das
moneycontrol.com
The proposed bifurcation of Telangana from the state of Andhra Pradesh (AP) impacted the auction pricing of the latter's development loans at the Reserve Bank of India (RBI) on Wednesday. Investors got a higher premium on the cut-off yield at 9.84 percent for tenure of ten years.Yield, which is not the same as interest or coupon rate, is the total interest income on a particular security. AP was raising Rs 1,000 crore loans through the RBI auction process for which the entire volume was sold fully. Last time, the state had raised similar Rs 1,000 crore wherein the central bank had allowed a cut-off yield at 8.25 percent in an auction dated April 23, 2013. However, these two are not strictly comparable due to prevailing liquidity (availability of money) situations in different months.With the latest yield, according to bond traders, the state beat West Bengal that was offering the highest yield in earlier auctions. The eastern state is now ranked second with a cut-off yield at 9.72 percent in the state loan auctions dated July 31.Also read: Here's how ICICI Bank will expand its loans & deposits"Primarily, investors were apprehensive of AP's prospect due to Telangana separation," a fund manager told moneycontrol.com on conditions of anonymity."Hence, they bid quoting higher yields. The liquidity is also tight, leading to poor market sentiment in the markets. RBI is aware of the fact and did not hesitate to oblige investors with a bit higher cut-off yield," the person said.Must read: RBI Credit Policy: Leaves key rates unchanged, reflects no hawkish stanceOn Tuesday, the UPA government had decided to create a new Telangana state out of Andhra Pradesh responding to the prolonged political demand. Hyederabad will continue to be the state capital for both the states in next 10 years, after which it will remain the same for Telangana only. The move is believed to be a loss to the politically powerful state but a gain for the ruling Congress party both at Hyderabad and New Delhi.Interestingly, the states of Gujarat and Maharashtra both cancelled bids for their state loans of Rs 1,500 crore and Rs 2,000 crore respectively. In the previous state loan auctions dated July 16, 2013; five states including Gujarat, Karnataka, Maharashtra, Rajasthan, and Tamil Nadu had cancelled their all bids. When investors bid at a higher yield and the issuing state does not accept those bids, it stands cancelled. Cancellation also depends on the urgency of the issuer to raise funds. If a state is in dire need of funds, it is likely to pay a little higher premium but if a state is performing well, it may not accept higher quotes on yields.saikat.das@network18online.com Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
