New Zealand Debt Management (NZDM) is a function within the New Zealand Treasury. Its primary responsibility is the efficient management of the Crown’s debt and associated financial assets within an appropriate risk management framework. The maintenance of a well-functioning New Zealand Government Securities (NZGS) market is central to this remit.
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.
New Zealand Government Securities
NZDM manages the issuance of NZGS, which includes: nominal bonds, inflation-indexed bonds (IIBs), Treasury Bills (T-Bills) and European Commercial Paper (ECP) in the wholesale market. At 31 July 2020, there were NZD 105.5 billion of bonds on issue. Of these, NZD 102.3 billion were market bonds that may be freely traded in the secondary market. In addition, there were NZD 11.0 billion of T-Bills and USD 1.2 billion of ECP on issue.
Over the five year forecast period, total outstanding market bonds are projected to increase to NZD 217 billion.
At 31 July 2020, there were ten nominal bond and four IIB maturities as shown in Chart 6. Individual nominal bond lines are capped at a maximum of NZD 18 billion face value, while IIB maturities are capped at NZD 6 billion. Coupons on nominal bonds are paid on a semi-annual basis, in arrears. For IIBs, coupons are paid quarterly, in arrears.
Chart 6: Outstanding NZGBs and Capacity for Issuance – At 31 July 2020
Source: The Treasury
Chart 7: Total NZGBs and Projections
Source: The Treasury
For more information see the New Zealand Government Securities Funding Strategy publication.
Primary issuance of NZGBs and T-Bills is undertaken by NZDM through competitive tenders and/or syndications.
The BEFU and HYEFU announcements contain a breakdown of the core Crown’s funding needs and annual bond issuance forecasts. They also include forecasts of the level of T-Bills on issue at 30 June. The most recent update, published alongside BEFU on 14 May 2020, is shown in Table 3.
Ahead of each month, a regular NZGB issuance schedule is announced, including the full details of tender dates, bond maturities, and volumes for the entire month. The announcement occurs at 8am (NZT) on the day prior to the last tender of the preceding month.
NZGB tenders are typically held on Thursdays. Only Registered Tender Counterparties (RTC) may take part in tenders, however, interested parties may offer their bids through a RTC. Bids must be submitted by 2pm on the day of tender. The minimum denomination is NZD 1 million (principal) and in multiples of NZD 1 million thereafter.
T-Bills are also issued via tenders which occur weekly on Tuesdays, when bids need to be submitted by 2pm. Typically 3 month, 6 month and 12 month maturities are offered. The volume and maturities on offer may vary and are announced the day prior to tender.
Historically, one to two syndications were undertaken annually and they were confined to launching new bonds. However, a higher annual programme has led to an increase in frequency, with three undertaken this calendar year-to-date and a further syndication planned for August. Along with syndications of new bonds, tap syndications of existing bonds are now also part of the Funding Strategy. Historically, syndication volumes were around NZD 1.5 to 2.0 billion, but the two most recent syndications were NZD 7.0 billion and NZD 4.5 billion.
Table 3: Forecast – New Zealand Government Bonds and Treasury Bills
Year Ending 30 June (face value)
|Gross NZGB issuance (NZD billion)||29||60||40||35||30||194|
|NZGB maturities and repurchases (NZD billion)||5||11||0||16||15||48|
|Net NZGB issuance (NZD billion)||24||49||40||19||15||146|
|NZGBs on issue (NZD billion)||94||143||183||202||217||n/a|
|NZGBs on issue (% of GDP)||32%||49%||56%||57%||58%||n/a|
|Forecast T-Bills on issue*||12||10||10||10||10||n/a|
Source: The Treasury, in conjunction with BEFU, 14 May 2020, adjusted for 2020 actual
*The forecasts show current expectations of how short-term cash liquidity needs will be met at fiscal year-end. However, the actual issuance of T-Bills, may vary from forecast, based on actual short-term cash needs and an assessment of relative costs.
The secondary market is supported by major local banks and global intermediaries. There is a repurchase market for NZGBs and the RBNZ also offers a bond lending facility as a lender of last resort.
NZGB yields have historically traded above global developed market peers. Chart 8 shows generic 10-year NZGBs yields relative to sovereign peers with similar credit ratings, as captured in Chart 1. Over the past two decades, generic 10-year NZGBs have traded between -70bps and 320bps over their US equivalents. Over the same period, NZGBs have traded between -40bps and 110bps over Australian equivalents.
Chart 8: NZGB Yield Relative to Peers with Similar Rating
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.
Considerations for Non-Residents
For non-resident investors, NZGBs are effectively free from withholding tax. 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 30 June 2020, 50% of NZGBs were held by non-resident investors. Over the past 15 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.
NZGS are primarily issued only in NZD. However, a small amount of foreign currency ECP is on issue and documentation for European Medium Term Note is maintained to enable issuance in foreign currencies.
NZDM maintains regular communication with investors via a variety of channels and welcomes enquiries.
To receive communications via email (including the monthly Investor Update) please contact: [email protected]
For further information on New Zealand Government Securities see: debtmanagement.treasury.govt.nz
For detailed current economic information see: treasury.govt.nz
For further information on the RBNZ see: rbnz.govt.nz
For further information on the New Zealand Government’s Wellbeing Budget policies see: budget.govt.nz
- The list of RTC is available at https://debtmanagement.treasury.govt.nz/government-securities/primary-market-access-information
- Of the 12 sovereign peers captured in Chart 1, Kuwait, Liechtenstein and Luxembourg are excluded.