The bond market could be caught off-guard if New South Wales is forced into a similar position as Victoria and reimposes lockdowns as the government's funding needs dramatically escalate.

Fixed income investors endorsed the July economic and fiscal update on Thursday, with yields on benchmark government yields largely steady even as the Treasurer updated the market on the size of the budget blackhole.

With a headline budget deficit of $209 billion in 2020-21 and bond maturities of around $44 billion, Nomura forecasts the funding task across all securities to be at $253 billion in financial 2021, of which Commonwealth government bonds could represent $230 billion.

The Australian Office of Financial Management's issuance update, which could come as soon as Friday, should clarify the size of the task ahead.

And Deutsche Bank estimates the new figures are equivalent to a funding task of $4 billion to $5 billion in most weeks, which is what the AOFM has guided to.

But with the deficit already priced in and it's toll well understood, investor attention was instead focused on the risks that COVID-19 could inflict further economic damage beyond what was charted.

“Everyone in the fixed income market was expecting those types of numbers,” agreed Nikko Asset Management’s Chris Rands, a fixed income portfolio manager.

"The real risk is, if we do see cases continue to rise in NSW and we end up on a track that looks closer to Victoria, then [these] figures will start to really get bigger again.

"Spending goes up, the deficits would get bigger, the government would have to issue more, and that should that should be pushing yields higher."

Read more on the outlook for bonds here.