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New Zealand Government Securities Market

The New Zealand Crown has always paid when due the full amount of principal, interest and amortisation requirements upon its external and internal debt, including guaranteed debt.

During 1988, as part of the reform of the Government's financial management, the New Zealand Debt Management Office (NZDMO) was formed as an operational unit of the Treasury. It is responsible for the efficient management of the Crown's debt and associated financial assets within an appropriate risk management framework. Its broader responsibilities include providing capital market advice and financial transaction services to other agencies of the Crown.

New Zealand Government Securities

The Treasury's NZDMO manages the issuance of nominal bonds, inflation-indexed bonds (IIBs) and Treasury bills in the wholesale market. At 31 December 2017 there were NZD74.4b of bonds on issue. Of these, NZD71.4b were market bonds that may be freely traded in the secondary market. In addition, there were NZD4.1b of Treasury bills on issue.

Over the forecast period, total outstanding bonds are projected to remain above NZD65b. The Government's recent commitment to maintain NZGBs on issue at not less than 20% of GDP over time ensures long-term durability of the NZGB market, even if net core Crown debt were to fall below 20% of GDP.

At 31 December 2017 there were eight nominal bond and four IIB maturities as shown in Chart 5. Individual nominal bond maturities are capped at NZD12b outstanding, while IIB maturities are capped at NZD6b. Coupons on nominal bonds are paid on a semi-annual basis, in arrears. For IIBs, coupons are paid quarterly.

Chart 5: Outstanding NZGBs and Capacity for Issuance

Source: The Treasury

Chart 6: Total NZGBs and Projections

Source: The Treasury

Credit Ratings

New Zealand's credit rating is within the top fifteen sovereign ratings globally. Rating agencies Standard & Poor's and Fitch currently maintain an AA long-term foreign currency rating for NZGBs. Moody's has maintained an Aaa long-term foreign currency rating on the bonds since October 2002.

Table 2: NZGB Long-term Credit Ratings

Rating Agency Local
Currency
Foreign Currency Latest Review Date
Moody's Investor Service Aaa
(stable outlook)
Aaa
(stable outlook)
Oct-17
Standard & Poor's AA+
(stable outlook)
AA
(stable outlook)
Jan-17
Fitch Ratings AA+
(stable outlook)
AA
(stable outlook)
Feb-17

Source: Moody's Investor Service, Standard and Poor's, Fitch Ratings.

Primary Issuance

Primary issuance of New Zealand Government Securities is undertaken through competitive tenders and/or syndications.

The BEFU and HYEFU announcements contain a breakdown of the Crown's funding needs and annual bond issuance forecasts. The most recent update, published alongside HYEFU in December 2017, is shown in Table 3.

Ahead of each quarter, the Treasury's NZDMO pre-announces a regular bond issuance schedule. Approximately two weeks prior to the end of the quarter (around the time of the last tender of that quarter) the NZD value, and maturity of bonds to be issued on specified dates in the subsequent quarter, are announced.

NZGB tenders are typically held on Thursdays. Interested parties may offer their bids through a registered tender counterparty. Bids must be submitted by 2pm on the day of tender. The minimum denomination is NZD1m (principal) and in multiples of NZD1m thereafter.

Treasury bills are also issued via tender. These occur fortnightly, on Tuesdays, when bids need to be submitted by 2pm. Typically 3 month, 6 month and 12 month maturities are offered. The precise volume and maturities on offer are announced the day prior to tender.

Syndication has historically been confined to launching a new bond. This method enables the placement of a large volume into the market, promoting liquidity in the new bond from initiation. Recent syndication volumes have been between NZD1.5-2.0b.

Trading History

NZGB yields generally trade some way above their global developed market peers. Over the past two decades generic 10-year NZGBs have traded between 20bps and 300bps above their US equivalents. Over the same period they have traded between -40bps and 140bps over Australian equivalents.

In terms of absolute levels, NZGB yields have been on a declining trend in recent decades, in line with the global disinflationary trend. Specifically in New Zealand, the RBNZ Act of 1989 entrenched an inflation-targeting mandate. This has contributed to structurally lower yields as inflation expectations have declined.

Secondary Market

The secondary market is supported by major local banks and global intermediaries. There is a repurchase market for NZGBs. The RBNZ publishes data showing weekly and monthly turnover of New Zealand Government Securities[3].

Chart 7: NZGB Yields Relative to Peers*

Source: Bloomberg, * Generic bond spreads

Table 3: Forecast NZGB Issuance

Year Ending 30 June
(face value) (NZDb)
2018 2019 2020 2021 2022 Total
Gross NZGB issuance 7.0 7.0 7.0 7.0 7.0 35.0
NZGB maturities and repurchases 9.1 7.9 7.3 11.1 0.0 35.3
Net NZGB issuance -2.1 -0.9 -0.3 -4.1 7.0 -0.3
NZGBs on issue 72.3 71.4 71.2 67.1 74.1 n/a
NZGBs on issue (percent of GDP) 25.2% 23.7% 22.5% 20.2% 21.4% n/a

Source: The Treasury, in conjunction with HYEFU, 14 December 2017.

Considerations for Non-Residents

NZGBs are effectively free from withholding tax for non-resident investors. While NZGBs are subject to an Approved Issuer Levy like other New Zealand bond issues, the Crown will pay this tax on behalf of non-resident investors.

At November 2017, over 60% of NZGBs were held by non-resident investors. Over the past fifteen years this percentage has ranged between 50% and 80%. Participants in the market are diverse by type and by regional location. Nominal NZGBs and IIBs are currently constituents of a number of global benchmark bond indices.

New Zealand Government Securities are currently issued only in New Zealand dollars. However, documentation is maintained to enable issuance in alternative currencies.

Investor Communications

The Treasury's NZDMO maintains regular contact with its investors via a variety of channels and welcomes enquiries.

To receive communications via email please contact: info@nzdmo.govt.nz

For further information on New Zealand Government Securities see: https://www.nzdmo.govt.nz

For detailed current economic information see: http://www.treasury.govt.nz

For further information on the RBNZ see: http://www.rbnz.govt.nz

Notes

  • [3] This data captures turnover on the RBNZ's NZClear clearing and settlement system.
Last updated: 
Wednesday, 7 February 2018