State Loan Spread Ladder

Why this is expected to work

State Development Loans are borrowings of Indian state governments, auctioned by the RBI on the same platform as central G-Secs and settled the same way. They are not centrally guaranteed, but states cannot be allowed to fail in a way that would make an SDL default politically or practically survivable, and none has. In our own data SDLs price at an average of roughly 44 basis points over the central curve against essentially zero for G-Secs — that spread is the compensation, and it is paid for illiquidity and a legal technicality far more than for credit risk. The reason this is worth a retail investor's attention is that RBI Retail Direct made SDLs directly purchasable without a broker or a fund wrapper, so the spread is accessible rather than institutional-only. The universe is also unusually large: 6,578 distinct SDL ISINs carry daily valuations, versus 185 for the central G-Sec segment, because every state issues repeatedly across tenors. Two honest limits: the valuation history begins in February 2023, so this is a short backtest, and SDLs trade far less than the central benchmark — the spread you earn is largely the price of not being able to sell quickly.

How the pipeline works

What this template teaches

• spread_over_gsec — a bond yield measured against the sovereign curve
• time_to_maturity_years as a daily-changing selection axis
• price_is_traded — separating a real print from a carried valuation
• Selecting a segment by its economics rather than by an unreliable label