There was little agreement in the financial media on Friday about whether borrowing costs would increase for Australia and all Australians if the country loses its AAA credit rating. In theory, borrowing costs would rise - all other things being equal.But all other things are rarely equal. There are a lot of moving parts that make measurement of increasing costs and attributing causality difficult.It is more likely that borrowing costs will increase for Australia's major banks if Australia and the banks in turn are downgraded. But even that is not certain.The first difficulty encountered with measurement and attribution is timing.There was no immediate reaction in CDS spreads for Australian sovereign risk and, indeed, the Aussie iTraxx index for Australian corporate default risk fell by 0.9 basis points on the day. However, Bloomberg reported that the yield on the ten-year government bonds increased by four bps.But was this attributable to Standard & Poor's announcement or something else?There is no way to tell - bond yields move up and down every day. It should be remembered that all S&P has done is change the outlook on Australia's AAA rating to negative. There is a one in three chance of a downgrade over the next two years.Thus, no immediate reaction is perfectly reasonable but markets do pre-empt change. And if markets form the view that a downgrade is coming, then borrowing costs will rise as that view firms.If a downgrade is announced there will likely be a knee-jerk reaction, after which yields would return to previously levels, if the downgrade is in line with expectations. But even this is not guaranteed.As seen the week before last, S&P's downgrade of the United Kingdom saw Gilt yields fall, and the same happened when S&P downgraded the US in August 2011. Market reaction will be governed by expectations and whatever else is happening at the time.Attribution is problematic. At AA+ Australia would still be an excellent credit risk and hopefully, still be offering positive bond yields.In an environment of historically low and negative sovereign bond yields, Australia would still look very attractive. However, should the Reserve Bank cut interest rates further, Australia's attraction could fall, and, if in the meantime the outlook for the rest of the world improved, then Australia would most likely be facing increased borrowing costs.While it is more likely that the major Australian banks will see increased borrowing costs should Australia be downgraded, the same problems with timing and attribution remain.Credit default swap spreads for the banks were up to one basis point wider but had been moving upwards in recent days anyway. Secondary market yields and credit spreads on bank paper were up to 1.5 bps wider on longer dated issues. This movement is more likely to be attributable to the pricing of CBA's benchmark issue the day before, at a slightly wider level than seen in May.ADCM Services proprietary models for determining secondary market value for bonds and FRNs show that there is a least 12 bps difference across the