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Informist, Friday, Mar. 27, 2026

 

--States raise INR 12.77 tln via bonds FY26, up 19% on year

--State bond cut-off yields at auction top 8% for first time since July 2022 

 

NEW DELHI – State governments have raised INR 12.77 trillion through bonds on a gross basis in 2025-26 (Apr-Mar), up 19% on year from INR 10.73 trillion in FY25, according to data compiled by Informist. The total was marked by a record quarterly issuance of INR 5.23 trillion in the March quarter.

 

In the last auction of the financial year on Friday, 11 states raised INR 399.92 billion. The Reserve Bank of India set the cut-off yields on some state bonds maturing in 15 years or more at 8.00% or higher. This was the first time that state bond auction cut-off yields have topped 8% since Jul. 22, 2022.

 

"Everyone was expecting near 8% levels, but it (state bond cut-off yields) has crossed 8% now," a dealer at a private-sector bank said. "This is not good for the market."

 

Demand from long-term investors such as life insurers and provident funds was likely saturated by the second large state bond auction this week, likely pushing up cut-off yields. States had raised INR 548.34 billion on Tuesday. Demand for bonds has been muted by both the large supply and fears of rate hikes, driven by the rise in crude prices in March following the ongoing war in West Asia. While state bond yields have surged to their highest level since mid-2022, the 10-year benchmark gilt yield ended at 6.94% Friday, its highest since July 2024.

 

States have raised INR 2.01 trillion in Apr-Jun, INR 3.00 trillion in Jul-Sept and INR 2.53 trillion in the December quarter. Yield spreads of state bonds over gilts of similar tenures topped 100 basis points a few times over the past months. The spread of 10-year state bond yields over the 10-year benchmark gilt fell to as low as 30 bps in FY25 and remained near 40 bps at the beginning of FY26, before climbing due to heavy issuances in Jul-Sept. 

 

The record gross borrowing by states is lower than INR 14.61 trillion raised by the Centre on a gross basis in FY26. However, the RBI bought INR 8.78 trillion of gilts through open market operations, both at auction and on-screen, between Apr. 1 and Mar. 20, according to the latest data from the central bank. This has effectively led to a much larger net supply of state bonds to market participants in FY26 compared with gilts.  End

 

Reported by Aaryan Khanna and Diksha Tripathy

Edited by Saji George Titus

 

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