Recently, S&P downgraded the credit rating of Telstra senior bonds from A to A-. S&P said Telstra’s strong position within the Australian telecommunications industry had been “diminished somewhat” as competition intensified across its core businesses, which meant Telstra had to choose between lower margins or a reduced market share.
Obviously, this had some effect on Telstra’s bond prices, even though one bank said an A- rating is “still quite good” for a telco. Over the next week, Telstra spreads (to comparable Australian Commonwealth Government bonds) widened by anywhere from 9bps for the company’s April 2021 bonds to 17bps on its September 2022s.
A wider spread typically means a lower price, at least relative to its benchmark bond. Here is a chart of Telstra’s bonds for a few weeks prior to the downgrade and then for about a week afterwards:
