India state debt auction result shows skewed demand-supply dynamics, traders say
26/08/2025 11:44
By Dharamraj Dhutia MUMBAI, Aug 26 (Reuters) - Indian states fell short of their fundraising targets on Tuesday despite paying more than market expectations for their bonds as demand lagged supply, traders said. States raised 288.92 billion rupees ($3.30 billion) through sale of four-year to 30-year bonds, around 85% of the targeted 341.50 billion rupees. Cutoff yields on the longer duration papers ranged from 7.25% - 7.82%. "Market seems to have broken and there is only pain left," a senior trader said requesting anonymity as he is not authorised to speak to media. Debt demand has weakened since last week after the government announced cuts to goods and services tax rates, fuelling concerns over fiscal slippage and heavier supply. Economists warn that states will be more affected by the revenue hit than the central government, raising the likelihood of increased state bond sales given their limited funding options. "The state debt cut off shows that market appetite for fresh issuance has completely waned," said Alok Singh, group head of treasury at CSB Bank. "State debt is increasingly getting illiquid in the outright market as well. It seems the situation will not get under control without some assurance on the supply of the bonds." Indian bond market traders are calling for central bank intervention as a sharp drop in institutional buying has pushed yields higher, threatening to stall monetary transmission. ($1 = 87.6625 Indian rupees) (Reporting by Dharamraj Dhutia; Editing by Nivedita Bhattacharjee) ((Dharamraj.Dhutia@thomsonreuters.com;))