NSW Can Stay Away From Bond Markets for 6 Months, Treasurer Says

New South Wales, Australia’s second-biggest state borrower, can pay out a A$6 billion ($6.1 billion) security maturing in May from current resources and is able to avoid returning to the bond market for as long as six months, Treasurer Mike Baird said.

New South Wales Treasury Corp. has “adequate liquidity” to cover the May 2012 maturity and regular cash flows needed over the next six months, Baird said in response to e-mailed questions. The state has A$51.6 billion in outstanding debt, Bloomberg data show, second to Queensland’s A$72.6 billion. The extra yield investors demand to hold notes issued by regional authorities over federal debt widened to the most in 2 1/2 years last month, Bank of America Merrill Lynch data show.

“Based on current forecasts, we don’t expect TCorp to have any significant call on markets over the next three to six months,” Baird said. The recent increase in state government bond yields relative to federal debt is not specific to New South Wales and reflects “an inability for the financial markets intermediaries to warehouse risk as they normally would.”

The extra yield New South Wales’s 6 percent note maturing in May 2020 offers over 10-year Australian government bonds widened to 84.9 basis points, or 0.849 percentage point, on Nov. 24, the most since at least April 2010, and was 70.5 today.

The additional return investors demand to hold debt issued by Australia’s six states and two territories instead of sovereign securities increased to 99 basis points on Nov. 24, the most since March 2009, from 63 at the end of last month. The spread was at 96 on Nov. 30, Merrill Lynch indexes show.

“All debt issuers apart from the Commonwealth government have been impacted so this is more of a contagion issue,” Baird said. “A number of investors have come back into the market in the last week looking to buy TCorp bonds at these attractive spreads, which is promising.”

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