Daily Flows

• Foreign ‘A’-rated banks were offering attractive levels for 6-month tenors at 4.95%.
• Queensland’s mid-year budget release has led to a repricing of yields wider for QTC bonds as markets assess the potential for a credit rating downgrade.
• Short-term reference rates eased slightly across the curve. Post-Australia Day, trading volumes are expected to increase.

Queensland Budget Deficit Pushes QTC Bond Yields Wider

• Queensland’s mid-year budget release prompted S&P to flag a potential downgrade of the state’s AA+ credit rating, with total projected debt now forecast to reach $218 billion by 2028, up from last year’s projection of $172 billion.
• QTC bonds continue to underperform other semis, with expectations for further steepening in QTC’s ASW and G-spread curves.
• Economists caution that Queensland’s rising deficits and public sector borrowing per capita now exceed Victoria’s, heightening concerns over fiscal sustainability and market risks.
• Elevated government spending at both federal and state levels, including Queensland, is contributing to inflationary pressures, which could delay broader interest rate cuts.
• Investors on the sidelines with regulatory requirements to hold semi-government bonds may consider acting now, as semi-government bond yields have widened significantly in response to the budget update.