New Zealand Debt Management Office
Cancellation of Bond Tender Scheduled for 16 October 2008
The New Zealand Debt Management Office (NZDMO) today announced that the government bond tender scheduled for 16 October 2008 has been cancelled.
"The government bond market has become quite volatile in recent days. We believe it is prudent to defer issuance until market conditions have settled," said Mr Philip Combes, Treasurer, NZDMO.
The next bond tender is scheduled for 30 October 2008.
The NZDMO will continue with its flexible arrangements, which include the ability to issue bonds via tap tenders should demand occur outside the regular tender schedule.
Questions and Answers
What is a government bond?
New Zealand government bonds are wholesale fixed-term debt securities issued by the Crown to registered bidders in periodic government bond tenders. Government bonds have an initial maturity of one year or more.
Only bidders who are registered for this purpose with the New Zealand Debt Management Office may place bids for New Zealand Government Bonds. The minimum denomination is $1,000,000 (Principal) and in multiples of $1,000,000 (Principal) thereafter.
New Zealand Government Bonds may be purchased by members of the New Zealand public only if a successful bidder decides to on-sell their New Zealand Government Bonds. Any offer or on-sale of New Zealand Government Bonds to members of the New Zealand public must be made under the New Zealand Government Bonds Investment Statement which is available on request from email@example.com or firstname.lastname@example.org. The minimum amount for purchase by a member of the public is $10,000 and multiples of $1,000 thereafter.
How often are they issued?
Bonds are offered on a fortnightly basis. The Debt Management Office also recently announced its ability to issue “tap tenders” from 1 July 2008, which can be issued at short notice outside of that cycle. To date, five tap tenders have been undertaken.
Why have you cancelled today’s issue?
Consultation with market participants indicated that there had been recent selling of government bonds by retail holders. Market participants also advised that demand for bonds was likely to be temporarily reduced while investors sought further details of the deposit guarantee schemes announced by the Australian and New Zealand governments over the weekend. This is a temporary, one-off set of circumstances that will be resolved by the time of the next scheduled government bond tender on 30 October 2008.
What does this mean for the Government’s ability to raise funds in this way?
Today’s notice of cancellation does not suggest an inability to raise funds via bonds. The decision is a practical one, based on our recognition that it may not be prudent to continue with the bond tender solely for this round because of the temporary, one-off set of circumstances described above. The next bond tender is scheduled for 30 October 2008.
It should be noted that DMO’s issue of a Treasury Bill tender (for $200m) went very well today. Treasury Bills are short term (e.g. one year or less) wholesale fixed-term debt securities issued by the Crown to registered bidders in weekly tenders.
Will you issue bonds at the next scheduled time (fortnight)?
Yes, the intention is that another government bond tender will be held on 30 October 2008.
Have you cancelled an issue before?
While the cancellation is not common, it is not unprecedented. The DMO cancelled a bond issue in 2005, for example.
How do you decide to take this sort of action? Is there a process that is worked through, or is it a judgement call? Who makes the decision?
It is an operational decision made by the Treasurer of the Debt Management Office. It follows consultation with market participants (e.g. major domestic and international banks that regularly bid in government bond tenders, as well as some other domestic investors) and a judgement is made after considering their feedback.
Philip Combes | Treasurer
Tel: +64 4 917 6133
Andrew Turner | Head of Portfolio Management
Tel: +64 4 917 6071