State Govt guaranteed bonds to feel heat of high SDL yields - Weekly Credit Market Analysis

State government-guaranteed bonds are issued by state-backed companies and are embedded with unconditional and irrevocable guarantee by state governments, which acts as a principal debtor. Owing to guarantee by respective state governments, their bond yields are impacted by state fiscal positions. In the current scenario of Covid-19 crisis, state guaranteed bonds are exposed to risk driven by the widening fiscal deficit of states. Therefore, yield of state guaranteed bonds are likely to move up as SDL yields move up. State government-guaranteed bonds are issued by state-backed companies and are embedded with an unconditional and irrevocable guarantee by state governments, which acts as a principal debtor. Owing to guarantee by respective state governments, their bond yields are impacted by state fiscal positions.