The government of New South Wales announced last week that it would seek a Commonwealth government guarantee for all existing and new bond issues with maturities beyond 2012.Victoria reiterated that it would not be doing so. Bill Whitford, TCV CEO, was quoted in the AFR as saying, "We feel very strongly that the diversity TCV will bring to the market by continuing to offer state government bonds that are not guaranteed by the Commonwealth is to the overall benefit of the Australian market."In a market that will soon be awash with commonwealth guaranteed bonds, he is absolutely correct. It will also be to Victoria's long-term advantage too, delivering a lower overall cost of debt.Presumably, NSW based its decision to guarantee existing bonds on a perceived need to maintain liquidity in its benchmark lines. In other words, this would be preferable to fracturing the market by leaving existing bonds unguaranteed but issuing new bonds, with the same post-2012 maturities, with a Commonwealth guarantee.   However, this doesn't address what happens when NSW wants to issue without a Commonwealth guarantee. Bonds sold with a guarantee will have that guarantee for life.