In 1999, States began to adopt the auction method and some States were able to mobilise loans at competitive rates, whereas other States had to pay higher rates. The spreads in tap tranches were subsequently raised to around 50 basis points in 2001-02 from 25 basis points earlier with the introduction of Umbrella Tap Tranche for a total targeted amount at a predetermined coupon.
The tap used to be normally kept open for 1-3 days. With the deterioration in the State fisc and defaults in State guaranteed securities, the spread over secondary market yield of Central Government security increased steadily. The market seemed to have ceased to differentiate amongst States in terms of their fiscal performance.