Advisory Note: Changes to Nominal New Zealand Government Bond Tender Issuance Approach

Background

Nominal bonds are the primary funding instrument for the Crown. Issuance of nominal bonds is undertaken via both syndication and tenders.  Syndications are the preferred issuance method for launching new bond lines and tapping existing lines for larger volumes. However, most issuance of existing nominal New Zealand Government Bonds (NZGB) occurs via weekly tenders, which supports market functioning by ensuring ongoing supply and price transparency.

Under the current nominal NZGB tender process, NZDM announce, on the day prior to the last tender of the month, the dates, specific bond lines and volumes per bond line to be tendered in the upcoming month.

As part of its commitment to ongoing development, NZDM have undertaken a review of the nominal bond tender process, which included considering market participant feedback and tender processes utilised by peers. Compared with many peers, NZDM’s current process provides a high degree of certainty to the market; however, it provides less flexibility to respond to changing market demand.

Nominal bond tender process for tenders effective from 1 July 2023

As a result of this review, NZDM will take a more flexible approach to nominal bond tender issuance, with specific nominal bond lines and volumes offered, announced closer to the tender date. This will allow market feedback and more recent market dynamics to be considered when determining the details of nominal bond tenders.

There is no change to the multiple price auction mechanism used in nominal bond tenders.

Tender Schedule and Confirmation

• NZDM will continue to publish the nominal bond tender schedule, at 8am on the day prior to the last tender of the month, for the month ahead.  However, the schedule will only confirm the aggregate volume to be issued on stated tender dates, as well as a range of issuance per curve segment.  For example:

• On the second to last business day of each week, NZDM will collate market feedback in relation to demand for specific NZGB lines. This will be considered alongside NZDM’s own portfolio preferences.
• On the last business day of the week, NZDM will confirm, via a 11:30am announcement in Yieldbroker, Bloomberg and on NZDM’s website, the specific bond lines, and volume per line to be offered at the tender in the following week.  

Tender timing

• Tenders will continue to primarily be undertaken on Thursdays, except to avoid public holidays and Economic and Fiscal Update releases.
• Tenders will open at 2pm and close at 2:30pm NZT to avoid clashing with a regular market data release, rather than from 1.30pm to 2pm as is current practice.
• Results will be announced from 2:35pm on the day of the tender.

Inflation-Indexed Bond (IIB) and Treasury Bill (T-Bill) tender process for tenders effective from 1 July 2023

• For consistency, from 1 July 2023, IIB and T-Bill tenders will also open at 2pm and close at 2:30pm, with results announced from 2:35pm on the day of the tender. 
• Tenders for IIBs and T-Bills will continue to be primarily undertaken on Thursdays and Tuesdays respectively.
• To align with nominal bonds, IIB demand will be surveyed on the second to last business day of each week.  When NZDMs intends to tender IIBs the following week, this will be announced on the last business day of the week via a 11:30am announcement in Yieldbroker, Bloomberg and on NZDM’s website, along with the nominal bond tender announcement.
• No other changes will be made to IIB or T-Bill tenders.

The changes to the nominal NZGB tender process outlined are intended to better match supply and demand for nominal bond lines. They aim to strike a balance between increased flexibility and responsiveness to market conditions, whilst remaining true to NZDM’s guiding principles of transparency, consistency, and even-handedness. The changes will be displayed in the July 2023 NZGB tender schedule and implemented for tenders from 1 July 2023.