State bond yields have been trading higher than AAA-rated public sector undertaking (PSU) bonds for maturities of 10 years and beyond, data showed. Recent state development loans (SDL) auctions have shown average yields of around 7.11 per cent for longer tenors, climbing to 7.23 per cent in annualised terms.
On the other hand, AAA-rated PSU bond yields for similar maturities are trading slightly lower, between 7.10 per cent and 7.16 per cent.
Market participants said that the price difference is largely driven by heavy supply, timing mismatches in fund flows, and rising global interest rates.
"This yield differential is influenced by a combination of increased supply, investment behaviour driven by regulatory mandates, and broader macroeconomic factors," said Venkatakrishnan Srinivasan, founder and managing partner of Rockfort Fincap LLP.
"Following the Federal Open Market Committee's (FOMC's) hawkish commentary alongside a 25 basis points (bps) rate cut, global yields, including US Treasuries, have risen, causing an upward adjustment in Indian bond yields," he added.
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