Diverging Demand for Local Government Bonds: 14 Indian States Raise 476.2 Billion Rupees

⑴ On Tuesday, data released by the Reserve Bank of India showed that a total of 14 states raised funds through loans, with the actual financing amount reaching 476.2 billion rupees, slightly below the set target of 486.15 billion rupees. ⑵ The yields of bonds with different maturities issued by various states vary, but are generally at high levels. For example, the 5-year bond yield of Gujarat is 7.02%, while the same bond yield in Assam is as high as 7.87%. ⑶ Most long-term bond yields are concentrated in the 7.75%-7.86% range. For instance, the 26-year bond of Bihar has a yield of 7.77%, while the 6-year bond yield of Karnataka is relatively low at 7.19%. ⑷ Some states accepted additional or partial subscription amounts. For example, Gujarat accepted an extra 5 billion rupees for its 5-year bond, while Madhya Pradesh and West Bengal accepted partial subscriptions of 15.5 billion rupees and 12.55 billion rupees, respectively, for their 21-year bonds. ⑸ Implied yield data shows that the market prices long-term credit risk of different states with subtle differences. For example, the implied yield of Karnataka's SDL bond maturing in 2035 is 7.5393%, while that of Chhattisgarh's SDL bond with the same maturity is 7.5617%. ⑹ The results of this auction indicate that while the Indian local government bond market meets most financing needs, there is also a differentiation in demand among different regions and maturities.