The annual Core Crown borrowing programme includes issuance of both New Zealand Government Bonds and Treasury Bills (T-Bills). Historically, the contribution of T-Bills to the total programme has varied. For example, in late 2012, T-Bills on issue were as high as NZ$10 billion and constituted more than 15% of the total debt portfolio managed by the NZDMO.
Subsequently, as part of the broader funding strategy, total T-Bills on issue were reduced. This helped reduce the refinancing risk arising from a large proportion of the funding portfolio in short-dated debt instruments. In recent years total T-Bills on issue have been in a steady state of around NZ$4 billion.
The NZDMO continues to revise its funding strategy by implementing further changes to its issuance approach for Treasury Bills. These changes recognise that short-term funding mechanisms provide the flexibility necessary to cost-effectively manage the Core Crown cash liquidity position through time.
What is changing?
From 1 July 2018, the NZDMO will take a more flexible approach to T-Bill issuance in its annual borrowing programme. T-Bill issuance will be largely based on cash management needs, rather than on a targeted fixed level of T-Bills on issue ie, NZ$4 billion.
The fortnightly (Tuesday) tenders will continue as per current practice. However, the amount of T-Bills offered and accepted at each tender will be more variable. The amount of T-Bills offered at any tender will depend on the Core Crown’s short-term liquidity requirements. The amount of T-Bills accepted will be based on NZDMO’s assessment of the relative cost of T-Bill issuance versus alternative short-term funding mechanisms.
NZDMO recognise the value of accessing short-term funding through the T-Bill market, so a minimum of NZ$2 billion of T-Bills on issue is the base forecasting assumption for annual borrowing programmes. Forecast deviations from the NZ$2 billion base assumption have been made based on projected short-term funding needs.
Forecast T-Bills on issue (face value) can be seen in the table below and are published (expressed as carrying value) in the Budget Economic and Fiscal Update, Forecast Financial Statements. These forecasts show current expectations as to how the NZDMO will meet forecast short-term cash liquidity needs. However, the actual issuance of T-Bills, may vary from forecast, based on NZDMO’s assessment of relative costs.
How are T-Bill forecasts at BEFU 2018 different from those published at HYEFU 2017?
At Half Year Economic and Fiscal Update (HYEFU) 2017, forecasts showed approximately NZ$4 billion of T-Bills on issue at the end of each fiscal year of the forecast period. Forecasts (expressed as carrying value) are shown on page 109 “Forecast Statement of Borrowings” of the Forecast Financial Statements. Forecasts for issuance (face value) have been amended as shown in the table below:
Forecast Treasury Bills Outstanding (note these forecasts show T-Bills on issue at the end of each fiscal year)
|Year ending 30 June (face value)||2018||2019||2020||2021||2022|
|Forecast T-Bills on issue (HYEFU 2017) ($ billion)||4||4||4||4||4|
|Forecast T-Bills on issue (BEFU 2018) ($ billion)||4||2||2||4||2|
|Change from HYEFU 2017 – T-Bills on issue ($ billion)||-||-2||-2||-||-2|
Forecast New Zealand Government Bond Programme
|Year ending 30 June (face value)||2018||2019||2020||2021||2022||Total|
|Gross NZGB issuance ($ billion)||7.0||8.0||8.0||8.0||7.0||38.0|
|NZGB maturities and repurchases ($ billion)||7.2||11.2||5.8||11.1||0.0||35.3|
|Net NZGB issuance ($ billion)||-0.2||-3.2||2.2||-3.1||7.0||2.7|
|NZGBs on issue ($ billion)||74.2||71.0||73.2||70.1||77.1||n/a|
|NZGBs on issue (percent of GDP)||25.0%||23.3%||22.9%||20.9%||22.0%||n/a|
|Change from HYEFU 2017 - Gross NZGB issuance ($ billion)||-||1.0||1.0||1.0||-||3.0|
How have changes to T-Bill forecasts impacted on the total borrowing programme?
At the end of the forecast period, total NZGBs on issue are forecast to be NZ$3 billion higher, and T-Bills on issue to be NZ$2 billion lower, than at HYEFU 2017. Combining these changes, the total forecast borrowing programme will be NZ$1 billion higher at the end of 2021/22 compared to HYEFU 2017. Changes to the inter-year profile for NZGB and T-Bill issuance, relative to HYEFU 2017, will better manage expected inter-year fluctuations in the Core Crown cash position.
Sarah Vrede | Director, Financial Operations and Head of New Zealand Debt Management Office | The Treasury
Tel: +64 4 917 6071
Matthew Collin | Head of Portfolio Management | New Zealand Debt Management Office | The Treasury
Tel: +64 4 917 6015