The Reserve Bank of Australia has injected around $2 billion into state bonds, as it expands its unconventional monetary policy measures.
The move comes as a bid to revive the ability of the states, particularly New South Wales and Victoria, to borrow and fund their own stimulus packages.
The move into state-issued treasuries is unprecedented and comes after the bank announced it would be buying $13 billion worth of securities in Australian government bonds.
The "comprehensive package" agreed by the Reserve Bank board last week included targeting a yield on three-year Australian government bonds of around 0.25%, launching a term funding facility for the banking system and remunerating exchange settlement balances at 10 basis points instead of zero.
When announcing the quantitative measures RBA governor Philip Lowe said that while COVID-19 is a public health issue, the bank was compelled to step-in due to the "very major" impact the virus is having on the economy and financial systems.
"As the virus has spread, countries have restricted the movement of people across borders and have implemented social distancing measures, including restricting movements within countries and within cities," Lowe said.
"The result has been major disruptions to economic activity across the world. This is likely to remain the case for some time yet as efforts continue to contain the virus."
The bank will also continue to provide liquidity to Australian financial markets by conducting one-month and three-month repo operations in its daily market operations until further notice.
In addition, it will conduct longer-term repo operations of six-month maturity or longer at least weekly, "as long as market conditions warrant".