“State secured bonds” typically refers to debt instruments issued by a state‑owned or state‑linked entity but backed (secured or guaranteed) by a state government, so the state stands behind the repayment of interest and principal.
What “state secured bonds” usually mean
In the Indian context, these are often called state‑government‑guaranteed bonds or state‑guaranteed bonds; they are issued by state‑owned enterprises (for example power corporations, housing boards, or infrastructure companies) while the state government provides an unconditional and irrevocable guarantee.
If the issuer defaults, the state government steps in to pay investors, which makes these bonds relatively safer than pure corporate bonds of similar rating.
Key features
- Security: Principal and interest are effectively secured by the state’s credit, so risk is lower than non‑guaranteed corporate bonds.
- Coupon and structure: They usually pay periodic interest (quarterly or half‑yearly) and may have staggered or bullet maturities; yields are often higher than PSU/govt‑backed bonds of similar tenor but lower than pure high‑yield corporate paper.
- Issuers: Typically public‑sector undertakings or state corporations (e.g., state power utilities, state housing boards) whose bonds carry a state‑government guarantee.
