Daily Commentary BY THE CURVE TEAM –

NSW and Victoria Downgraded

8th of December, 2020

S&P have downgraded both NSW and Victoria’s long term credit rating.

NSW was downgraded one notch from AAA to AA+. Victoria was downgraded two notches to AA. Both have maintained their A-1+ short term rating.

The downgrades were due to the hits to revenues from the pandemic and the increase expenditure burden.

Victoria’s fiscal position was deemed to be under more pressure from the pandemic, which is intuitive given they were in a very strict lockdown for multiple months. S&P also cited less scope for asset sales and more uncertainty about how the government will manage their expenses as reasons for being downgraded two notches rather than the one.

NSW is legislated in the Fiscal Responsibility Act, 2012 to maintain a triple-A credit rating. It’s unlikely this will change any of the recent budget measures that were announced, but NSW will consistently need to show that their policies are prudent over the medium to long term. Victoria has no such burden.

Credit spreads for NSW and Victorian government bonds traded wider last night in response to the update.

Today the NAB business survey for November is released. We will also publish our final monthly economic insights for a tumultuous 2020.

Josh Stewart

Associate - Money Markets