Rising State Borrowing Costs Amid Global Uncertainty

State borrowing costs surged at Friday’s auction amid escalating global challenges, with rates rising by 0.15-0.30%. Oil price hikes and Middle East tensions pushed some securities above 8% yields, reflecting the strain on bond markets.

The RBI data revealed significant yield increases across various State Development Loans (SDLs). Notably, yields on 15-year SDLs surged by 0.24%, 20-year by 0.16%, and 25-year by 0.30%. The result: several states, including Gujarat and Assam, did not accept bids due to high yield demands.

The market turbulence is compounded by inflationary pressures and a depreciating rupee, causing further strain. However, investors like Venkatakrishnan Srinivasan of Rockfort Fincap LLP see potential opportunities, advising caution amid prospective high returns in a volatile environment.