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.
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.
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.