Australian/NZ Rates Strategy: QTC FY27 Budget & Funding Update

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Australian/NZ Rates Strategy: QTC FY27 Budget & Funding Update

QTC the clear winner from FY27 Budget Season, but still too cheap on RV

QTC has been outperforming in recent weeks and this unsurprisingly continued today

given they saw the biggest improvement in their budget and issuance outlook. But in

our view QTC still look too cheap on an RV basis. There are a few key factors which we

see benefitting QTC, especially in the 10-15 year sector where we see ongoing

outperformance vs TCorp. QTC should fundamentally trade tighter than TCorp in 10-15

years in our view, supported by:

One tailwind for QTC in FY27 is relative supply. They are now issuing less than both

TCV & NSWTC.

QTC have the greatest optionality to issue shorter, especially in terms of syndicated

supply, compared with TCorp & TCV. This will also help their curve bull flatten in

our view. QTC looks too steep through 5s10s and it should trade closer to +30bps,

between WATC & TCorp.

UBS see NSWTC (S&P: AA+, negative outlook) heading for an imminent credit

rating downgrade. Although subsequent comments from S&P reduce this risk as

they appear to be awaiting NSW's next budget update in December. Meanwhile,

QTC (same rating) has a little more head room with lower net debt to GSP,

including their large liquid asset holdings. QTC is emerging as the best credit

among the top three semi issuers. QLD's Budget saw a meaningful improvement

and their economic outlook is stronger, so unlike NSW, they may avoid a rating

downgrade in 2026.

Figure 2: A significant compositional shift it underway in the semi market, with

TCorp's supply in FY27 now projected to exceed QTC

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