Already a subscriber?State governments are looking to raise more money this year than the federal government for the first time to fund ambitious infrastructure projects, but will have to pay investors more to get the deals done.around $100 billion in debt this financial year
Jack Chambers, a senior rates strategist at ANZ, predicts a pick-up of as much as 0.20 percentage points. This is because banks, which are typically their biggest investor source, have less cash to put to work. Christian Baylis, co-founder at Fortlake Asset Management, is even more pessimistic and only holds a small amount of semi-government bonds because they pay “unattractive” returns. He doubts they will improve significantly, and anticipates a gain of a couple of basis points only.“Spreads are way too tight versus government bonds. Given the fiscal position of the states, the amount of supply, and the compensation above government bonds, the risk isn’t adequately priced,” he said.
The top four states currently offer between 58 basis points and 68 basis points on top of the Commonwealth bonds with 10-year maturity. UBS expects the premium to gradually increase by 12 to 15 basis points by mid-2026.Adrian Janschek, portfolio manager at First Sentier Investors which manages $60 billion in cash and fixed income, expects semi-government spreads to modestly widen after June. He anticipates they will stay in the range of 60 to 80 basis points over Commonwealth bonds.