Rating moves manageable to positive

The importance of ratings – especially the triple-A gold standard – has eased in global rates markets in the past decade as many of the world’s reserve borrowers have experienced rating decline. Australian issuers have experienced positive and negative rating moves in recent months – but say neither has had a huge impact.

ZAUNMAYR Was there any noticeable impact on the Australian Office of Financial Management’s bond tenders or investor response more generally following S&P Global Ratings’ revision of the outlook on Australia’s sovereign AAA rating to stable from negative?

WHEADON No. There was very little impact on investor demand for Australian bonds when S&P placed us on negative outlook, either. But the revision is an expression of confidence in the Australian economy and the government’s fiscal path. It is nice to be one of only nine countries to hold a triple-A credit rating from all three major rating agencies.

ZAUNMAYR New South Wales Treasury Corporation and Treasury Corporation of Victoria had downward rating revisions at the end of 2020 – by one notch and two respectively. These were largely accepted as inevitable to put the states on an improving economic trajectory. Now economic recovery has begun is positive ratings revision a priority for state governments?

KENNA I think we all benefit from the strong position of the Australian economy. New South Wales is still Aaa with Moody’s [Investors Service] and the government, through the Fiscal Responsibility Act, is committed to managing the state’s finances consistent with a triple-A rating. This commitment has not changed.

The timing of a rating change is a matter for rating agencies. S&P in its budget bulletin highlighted the New South Wales economic rebound and that the path back to a surplus will likely be faster than previously anticipated.

KELLY The Victorian treasurer has outlined the state’s four-step plan for fiscal recovery. Clearly, returning to surplus and stabilising debt levels – two of the steps – are key precursors to a positive rating change.

It will take time to recover. Rating agencies do not tend to turn ratings around particularly quickly so I think we will need to remain patient.

It is interesting that the impact of the double downgrade was very contained. We underperformed by 6 basis points on the day but by the end of the week it was only 3-4 basis points. I think this gives a good indication that, globally, investors still see the Australian states as being in a pretty good position compared with global peers.

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