The Treasury's New Zealand Government Securities Overview provides investors with insights into New Zealand’s economic backdrop, institutional framework and Government Securities Market. It is updated annually, after each Economic and Fiscal Update.
Kim Martin, Head of New Zealand Debt Management
Email: [email protected]
Tel: +64 4 890 7274
New Zealand Debt Management
The Treasury, 1 The Terrace, PO Box 3724, Wellington 6011, New Zealand
This document is for general information purposes only. It is not a product disclosure statement, disclosure document or other offer document under New Zealand law or any other law. This document is not, and does not constitute financial advice. All reasonable care has been taken in relation to the preparation and collation of this document. Except for statutory liability which may not be excluded, no person, including the Treasury or any person mentioned in this document accepts responsibility for any loss or damage howsoever occurring resulting from the use or reliance on this document by any person. Any person considering investing in New Zealand Government Securities must refer to any relevant offer documents and disclosures provided expressly in connection with those securities and should take their own independent financial and legal advice on their proposed investment.
New Zealand Government Securities#
New Zealand Government Securities are issued on behalf of the New Zealand Crown by New Zealand Debt Management (NZDM), a directorate within the Treasury (Te Tai Ōhanga). These securities provide investors with exposure to a strong fiscal and institutional framework, a diverse and robust economy, a sovereign credit rating in the top twenty globally, and a yield above many peers.
This overview is designed for new or potential investors in New Zealand Government Securities and provides insights into New Zealand’s:
- Institutional Framework and Economic Structure
- Economic and Fiscal Performance
- Government Securities Market
The overview also includes background information on participating in the New Zealand Government Securities Market.
-  New Zealand Government Securities are issued in the name of “the Sovereign in right of New Zealand”.
-  The Treasury is the Government's lead economic and financial adviser. The Treasury provide advice to the Government on its overarching economic framework, on its fiscal strategy and on achieving value for money from its investments.
-  The data is updated as at 30 June 2023.
Institutional Framework and Economic Structure#
New Zealand is globally recognised for its robust institutional framework. This institutional strength is demonstrated through high rankings across each of the World Bank's Governance indicators, shown below.
Chart 1: Percentile ranking on key governance indicators
Source: World Bank Worldwide Governance Indicators - 2021
Form of Government#
New Zealand is a sovereign state with a democratic parliamentary government based on the Westminster system. Its constitutional history dates back to the signing of the Treaty of Waitangi in 1840, between the indigenous Māori people and the British Crown.
The New Zealand Constitution Act 1852 provided for the establishment of a Parliament with an elected House of Representatives. Universal suffrage was introduced in 1893. New Zealand has the British monarch as titular Head of State. The Sovereign is represented in New Zealand by the Governor-General, appointed by him on the advice of the New Zealand Government.
As in the United Kingdom, constitutional practice in New Zealand is an accumulation of convention, precedent and tradition. As such, there is no single document that can be termed the New Zealand constitution. The Constitution Act 1986 however, updated, clarified, and combined in one piece of legislation, the most important constitutional provisions that had been enacted in various statutes. It provides for a legislative body, an executive and administrative structure and specific protection for the judiciary.
Legislative power is vested in Parliament, a single chambered body titled the House of Representatives. The members are elected for three-year terms through general elections. Eligible residents over 18 years of age may vote in general elections.
The executive Government of New Zealand is carried out by the Executive Council - a formal body made up of the Cabinet and the Governor-General, who acts on the Cabinet's advice. The Cabinet itself consists of the Prime Minister and her/his Ministers, who must be chosen from among elected Members of Parliament. Each Minister supervises and is responsible for particular areas of government administration. Collectively, the Cabinet is responsible for all decisions of the Government.
The judicial system in New Zealand is based on the British model. By convention, and the Constitution Act 1986, the judiciary is independent from the executive.
As a result of a referendum held in conjunction with the 1993 election, New Zealand changed from a “First Past the Post” system of electing Members of Parliament to a “Mixed Member Proportional” (MMP) system of proportional representation. Under MMP each voter has two votes to cast - a party vote and an electorate vote. A party vote helps decide the share of the 120 seats in Parliament that is allocated to each political party, while the electorate vote determines the local member of Parliament. This change was implemented in the 1996 election.
New Zealand is a small open economy and operates on free market principles. A large services sector and sizable manufacturing sector complement an efficient export-oriented primary sector (Chart 2).
New Zealand's land size is similar to Japan and the UK but with a resident population of only 5.2 million. The climate is temperate, supporting agriculture, forestry and horticulture. It has abundant natural resources and over 80% of electricity generation comes from renewables, including hydroelectric and geothermal power generation.
External trade is of fundamental importance to the New Zealand economy. Primary sector products, commodities, manufactured products and services are all important sources of export income. Tourism and education services remain the largest components of services exports, with New Zealand historically a popular destination for overseas visitors. Additional services exports include transport, financial and business services, and information technology. Raw materials, consumer goods and capital equipment for industry are key components of New Zealand’s imports.
New Zealand has had a freely floating exchange rate of its currency, the New Zealand Dollar (NZD), since March 1985. There are no exchange controls on foreign-exchange transactions undertaken in New Zealand, with the NZD one of the top fifteen traded currencies globally.
Chart 2: New Zealand exports by categories - Year ended March 2023
Source: Stats NZ
Monetary Policy Framework#
The Reserve Bank of New Zealand (RBNZ), was established as a Central Bank in 1934 and is responsible for monetary policy and financial stability policy. The Reserve Bank of New Zealand Act 1989 (the Act) cemented its independence and introduced inflation targeting.
The focus of monetary policy is to maintain price stability and support maximum sustainable employment. Monetary policy decisions are made by a committee – the Monetary Policy Committee (MPC). A remit is issued from the Minister of Finance to the MPC which sets out the specific operational objectives.
The latest remit was issued by the Minister of Finance on 27 June 2023. The new Remit retains an inflation target of 1% to 3% over the medium-term, with a focus on the 2% mid-point, and also the objective to support maximum sustainable employment. The remit also requires the MPC to assess the effect of its monetary policy decisions on the Government’s economic objectives, including the policy to support more sustainable house prices. In the Charter, which is agreed between the Government and the RBNZ, there are clauses to clarify that the MPC should communicate key considerations of its decisions with regard to financial risks. The new Charter also reconfirms that the MPC decision-making process should focus on seeking consensus where possible.
The Reserve Bank of New Zealand Act 2021 came into effect on 1 July 2022, replacing the previous RBNZ Act 1989. The renewal of the Act has fundamentally changed how the RBNZ operates and is governed in the aspects below:
- The RBNZ are now overseen by an independently-appointed governing board responsible for all decision-making (except decisions made by the Monetary Policy Committee). The Reserve Bank Governor is a member of the Board as well as Chief Executive.
- Te Tai Ōhanga - The Treasury now acts as the external monitor and the RBNZ report to the Treasury quarterly on the RBNZ's progress.
- The RBNZ's work must take account of the latest Financial Policy Remit issued by the Minister of Finance.
In March 2020, the RBNZ implemented alternative monetary policy via a Large Scale Asset Purchase (LSAP) programme. The Government provided an indemnity to cover losses the RBNZ may incur as a result of operating the LSAP programme, set as a proportion of specific assets on issue. The assets covered by the indemnity are limited to nominal New Zealand Government Bonds (NZGBs), Inflation-Indexed NZGBs and Local Government Funding Agency (LGFA) bonds. In the November 2020 MPS, the RBNZ also announced the introduction of the Funding for Lending Programme, where the RBNZ offered to lend funds to eligible counterparties at the Official Cash Rate for a term of three years. The FLP was available until 6 June 2022 for the initial allocations, and until 6 December 2022 for additional allocations.
In July 2022, the RBNZ started selling NZGBs, purchased under the LSAP programme, back to NZDM at a rate of NZ$5 billion per fiscal year. The RBNZ and NZDM signed a memorandum of understanding on the operational details relating to the sales.
Fiscal Policy Framework#
The Public Finance Act 1989 requires the New Zealand Government to be transparent in both its short- and long-term fiscal objectives and to maintain prudent debt levels.
The Public Finance Act stipulates the Treasury must publish economic and fiscal forecasts twice a year. These occur at the time of the mid-year Budget (Budget Economic and Fiscal Update - BEFU) and at the end of the calendar year (Half Year Economic and Fiscal Update - HYEFU). The Treasury must also provide a Pre-election Economic and Fiscal Update (PREFU) prior to general elections, which occur at least every three years. The forecasts extend for four years beyond the current fiscal year ie, “the forecast period”.
Without parliamentary authority, the Government has no authorisation to incur expenses and capital expenditure. An Appropriation Act is the means by which Parliament approves expenses and capital expenditure for the Government for the coming year.
This is supplemented by spending that is authorised under Permanent Legislative Authority which continues in effect until revoked by Parliament. The payment of interest on debt is an example of spending authorised under Permanent Legislative Authority.
The Financial Markets Authority Act 2011 established the Financial Markets Authority (FMA) as New Zealand's market conduct regulator. The FMA is an independent Crown Entity whose main objective is to promote and facilitate the development of fair, efficient and transparent financial markets. The FMA enforces financial markets legislation, including the Financial Markets Conduct (FMC) Act.
The FMC Act regulates the offering and trading of investments and the provision of certain financial services, the operation of securities and derivatives exchanges and trading behaviour on those exchanges. It also provides general prohibitions on misleading and deceptive conduct in financial markets. New Zealand Government Securities are “securities” for the purposes of the FMC Act.
-  However, there is often more than 120 seats which can occur when a party wins more electorate seats than their share of the party vote.
-  Bank for International Settlements, Triennial Survey, December 2022, percentage shares of average daily turnover.
-  https://www.rbnz.govt.nz/about-us/responsibility-and-accountability/our-legislation/reserve-bank-of-new-zealand-act-2021
-  https://www.rbnz.govt.nz/-/media/15c00025280847288a997c21b77fb11c.ashx
-  Publication of the HYEFU is not required in the year if the PREFU is published between 1 October and 31 December.
Economic and Fiscal Performance#
After a period of strong growth, the economy is slowing. Activity is expected to be soft throughout 2023 to reduce inflationary pressures further, with consumption and residential investment impacted by high interest rates either directly or via the impact of interest rates on the housing market. Annual average real GDP growth is forecast to slow to 1.0% in the June 2024 year, and average 2.7% per year thereafter. Continued strength in tourism, stronger growth in net migration, rebuild activity associated with the North Island weather events and less contractionary fiscal policy will help to offset slowing demand in other parts of the economy.
New Zealand generally runs a current account deficit. The current account deficit has widened in recent years to be 8.5% of GDP in the year to March 2023. However, the Treasury expects the current account deficit to narrow over the forecast period, as much of the drivers of the widening – tourism and export education, transport costs, strong goods imports, and weak goods exports – are expected to reverse. That said, New Zealand’s net international investment liability remains favourable, relative to history, at just under 50% of GDP.
New Zealand has one of the highest labour participation rates in the OECD, at 72% of the working age population. New Zealand's unemployment rate in the March 2023 quarter was 3.4%, a near record low. With slowing activity, Treasury expects the unemployment rate to rise above 5% in 2024, before declining to 4.8% by the end of the forecast period.
Annual consumer price inflation peaked at 7.3% in June 2022, and has begun moderating. The Treasury expects further moderation ahead, with inflation falling to 4.5% by the end of 2023 and dropping inside the Reserve Bank's target band of 1-3% inflation by late-2024. High inflationary pressures have led the RBNZ to continue tightening monetary policy, with the Official Cash Rate (OCR) increased from 0.25% in October 2021 to 5.50% currently. The RBNZ is projecting no further increases in the OCR this tightening cycle.
The flooding in Auckland, followed by Cyclone Gabrielle, in early 2023 led to large-scale flooding and wide-spread damage. In the economic forecasts, the lost production is reflected as lower-than-otherwise levels of exports of around $1 billion over the forecast period. Repairing and replacing damaged homes ($2 billion), replacing damaged household items ($900 million), and rebuild-related business investment ($7 billion) add to GDP over the forecast period.
Chart 3: RBNZ Official Cash Rate
Current Fiscal Strategy#
The Government's fiscal strategy is formally communicated twice a year, typically alongside the BEFU and HYEFU. The Government sets out its short-term fiscal intentions and long-term fiscal objectives with respect to core parameters such as; debt, operating expenses, operating revenue, the operating balance and net worth. In accordance with the Public Finance Act, the Fiscal Strategy Report is released alongside the BEFU, while the Budget Policy Statement is typically released alongside HYEFU.
Successive Governments have demonstrated a continued commitment to prudent fiscal strategy. As a result of COVID-19, the fiscal intentions were updated to recognise the need for a period of fiscal expansion to support the economy, however now that conditions have stabilised, the Government has reintroduced numerical targets. The Government's most recent Fiscal Strategy Report was published in May 2023.
The Government's short-term intention for the operating balance is to return the operating balance (before gains and losses) to surplus in 2025/26, then maintain an average operating surplus in the range of 0% to 2% of GDP over time thereafter. Complementing the operating balance target, the Government's short-term intention and long-term objective for total debt is to maintain net debt below the new ceiling of 30% of GDP.
Prior to the onset of COVID-19, the Government had been maintaining an operating surplus and had reduced net debt to 1.8% of GDP. To cushion the economy from the impact of COVID-19, operating deficits have subsequently been recorded. Deficits are forecast to continue until the operating balance reaches surplus in 2025/26.
Consistent with operating deficit forecasts, net debt to GDP is expected to increase. However, due to the low level of net debt immediately prior to the onset of COVID-19, it is forecast to peak at 22% of GDP, before declining to 18.4% by the end of the forecast period.
Following the severe weather events, there were a number of interim support measures including emergency business and primary sector support, and funding to help assess and fix roads. Additional decisions were made in Budget 2023, including the establishment of the National Resilience Plan, totalling $6 billion over a 10-year period.
|Year Ending 30 June||Actual||Forecast|
|Real GDP (production basis, annual average % change)||1.1||3.2||1.0||2.1||3.1||2.9|
|Unemployment rate (% of labour force, June quarter)||3.3||3.7||5.0||5.3||4.9||4.8|
|CPI inflation (annual % change, June quarter)||7.3||6.2||3.3||2.6||2.3||2.1|
|Current account balance (% of GDP)||(8.0)||(7.8)||(5.9)||(4.6)||(4.1)||(3.8)|
|Fiscal (% of GDP)|
|Core Crown tax revenue||29.9||29.3||29.7||29.8||30.4||30.4|
|Core Crown expenses||34.6||32.5||33.0||32.3||32.0||31.5|
|Total Crown operating balance before gains and losses||(2.7)||(1.8)||(1.8)||(0.8)||0.1||0.7|
|Core Crown residual cash||(7.4)||(5.7)||(6.5)||(0.1)||0.0||0.0|
|Net worth attributable to the Crown||48.0||45.4||42.9||41.3||40.6||40.7|
Source: The Treasury, in conjunction with BEFU, 18 May 2023
The New Zealand Government has clearly outlined wellbeing objectives to improve living standards of New Zealanders. The inaugural Wellbeing Budget was delivered in 2019 and, in June 2020, an amendment to the Public Finance Act introduced new requirements for the Government to report annually on its wellbeing objectives in the Budget. The amendment also requires the Treasury to periodically report independently on that state of wellbeing in New Zealand. The wellbeing objectives are enduring and change little on an annual basis. The current objectives, as outlined in the 2023 Wellbeing Budget, are:
- Just Transition - supporting the transition to a climate-resilient, sustainable, low-emissions economy
- Future of Work - equipping New Zealanders with, and enabling New Zealand businesses to benefit from, new technologies and lift productivity and wages through innovation
- Physical and Mental Wellbeing - supporting improved health outcomes for all New Zealanders, particularly the mental wellbeing of our young people
- Māori and Pacific Peoples - lifting Māori and Pacific peoples' incomes, skills and opportunities, including through access to affordable, safe and stable housing
- Child Wellbeing - reducing child poverty and improving child wellbeing, including through access to affordable, safe and stable housing.
The New Zealand Government recognises climate change is an urgent issue and is committed to leading climate change action. The Government legislated domestic climate targets through the Climate Change Response (Zero-Carbon) Amendment Act in 2019, with the aim of reaching net zero long-life greenhouse gas emissions by 2050 and a 24-47% reduction in gross biogenic methane emissions by 2050, compared to 2017 levels.
New Zealand is also a signatory of the Paris Agreement and the UN Sustainable Development Goals (SDG). Guided by the Paris Agreement, New Zealand is committed to reducing emissions and contributing to global efforts to limit the increase in global average temperature to 1.5˚C above pre-industrial levels. In October 2021, to show its commitment, the Government set a Nationally Determined Contribution (NDC) of reducing net emissions by 50% below gross 2005 levels for the period 2021-2030.
Alongside climate mitigation, New Zealand recognises the importance of adapting to the effects of climate change and is taking action to set the foundation for a more climate-resilient economy.
The Government also seeks to build a more productive, sustainable and inclusive economy. In November 2021, New Zealand signed the International Just Transition Declaration, which is a commitment of a just transition to a low carbon future.
Further information on the Government's climate change programme can be found on the Ministry of the Environment website.
New Zealand's credit rating is within the top twenty sovereign ratings globally. S&P Global Ratings and Moody's Investors Service currently assign the highest long-term local currency rating for New Zealand, at AAA and Aaa respectively. S&P Global Ratings upgraded New Zealand’s long-term credit ratings in February 2021, the first sovereign to be upgraded since the onset of COVID-19, while Moody’s Investors Service have maintained the rating since October 2002. Similarly, Fitch Ratings rates New Zealand highly, with a long-term domestic currency credit rating of AA+.
Source: Moody's Investors Service, S&P Global Ratings, Fitch Ratings
New Zealand Government Securities Market#
NZDM is a directorate 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 include: nominal bonds, inflation-indexed bonds (IIBs), Treasury Bills (T-Bills) and Euro-Commercial Paper (ECP) in the wholesale market. The inaugural Green Bond was issued in November 2022. From a debt management portfolio construction perspective, Green Bonds are treated similarly to conventional nominal bonds. Green Bonds form an enduring part of the New Zealand Government Bond (NZGB) programme.
At 30 June 2023, there were NZ$152 billion NZGBs outstanding. In addition, there were NZ$3 billion of T-Bills and US$1 billion of ECP on issue. NZGBs outstanding are projected to be NZ$192 billion at the end of the forecast period.
Chart 4: NZGB annual issuance and total outstandings
Source: The Treasury
When the RBNZ ceased their LSAP programme in July 2021, the RBNZ held NZ$52 billion of NZGBs (including IIBs) that were purchased under the programme. The RBNZ started selling back NZGBs purchased under the LSAP programme to NZDM in July 2022, and expect to have no NZGBs held under the programme by mid-2027.
At 30 June 2023, there were fourteen nominal bond and four IIB maturities on issue, as shown in Chart 5. Individual nominal bond lines are capped at a maximum of NZ$18 billion face value, while IIB maturities are capped at NZ$10 billion. Coupons on nominal bonds are paid on a semi-annual basis, in arrears. For IIBs, coupons are paid quarterly, in arrears.
Chart 5: Outstanding NZGBs and capacity for issuance - At 30 June 2023
Source: The Treasury, as at 30 June 2023
For more information see the New Zealand Government Securities Funding Strategy webpage.
Primary issuance of NZGBs and T-Bills is undertaken by NZDM through competitive tenders and/or syndications.
The BEFU and HYEFU announcements contain forecasts for annual bond issuance, bond maturities and repurchases, and the level of short-term borrowings on issue at fiscal year end. The most recent update, at the time of publication, is shown in Table 3.
Ahead of each month, a regular NZGB issuance schedule is announced. The announcement occurs at 8am (NZT) on the day prior to the last tender of the preceding month. The schedule announces the aggregate volume to be issued on stated tender dates, as well as a range of issuance per curve segment. On the last business day of the week prior, NZDM will announce the specific bond lines, and volume per line to be offered at the tender in the following week. NZDM survey market demand on a weekly basis, and interested parties can express their demand via RTCs. Market demand is considered alongside NZDM's own portfolio preferences when determining tenders.
IIB tenders can occur up to twice a month. Issuance volumes and tenors are informed by market demand. Therefore, IIB tenders will only occur when demand is expressed in our regular market survey. IIB tender details, such as the IIB maturity date(s) and volumes, are published on the last business day of the week prior to the scheduled tender date.
NZGB tenders are typically held on Thursdays. Only Registered Tender Counterparties (RTC) may take part in tenders, however, investors may offer their bids through a RTC. Bids must be submitted between 2.00pm and 2.30pm (NZT) on the day of tender. The minimum denomination is NZ$1 million (principal) and in multiples of NZ$1 million thereafter. Further details are available on the NZDM website.
T-Bills are also issued via tenders which occur weekly on Tuesdays, when bids need to be submitted between 2.00pm and 2.30pm (NZT). 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.
ECP issuance to end investors is distributed by the banks named in the ECP issuance program, with pricing levels set daily by NZDM.
Historically, one to two syndications were undertaken each fiscal year and were confined to launching new bonds. However, since the pandemic, up to 5 syndications have taken place per year and tap syndications of existing bond lines have also been utilised.
Historically, syndication volumes were around NZ$1.5 to 2.0 billion but, since the pandemic, volumes have ranged from NZ$2.25 billion to NZ$7.0 billion. Volumes of future syndications will depend on annual NZGB borrowing programmes, the specific bond line being issued, and investor demand.
The secondary market is supported by banks, both local and offshore, including those that participate in the NZGB primary market. The secondary market is supported further by an interbank repurchase market, along with the RBNZ offering an overnight bond lending facility as a lender of last resort.
NZGB yields have historically traded above our global market peers. Chart 6 shows generic 10-year NZGBs yields relative to sovereign peers with similar credit ratings. Since 2001, generic 10-year NZGBs have traded between -70bps and 320bps over their US equivalents. Over the same period, NZGBs have traded between -40bps and 110bps over Australian equivalents.
Chart 6: NZGB yield relative to peers with similar credit ratings
|Year Ending 30 June||Actual||Forecast|
|Gross NZGB issuance (NZ$ billion)||27.7||34||32||30||24||147.7|
|NZGB maturities and repurchases (NZ$ billion)||22.4||18.8||19.9||19.6||22.4||103|
|Net NZGB issuance (NZ$ billion)||5.2||15.2||12.2||10.5||1.6||44.6|
|Outstanding NZGBs (NZ$ billion)||152.4||167.6||179.8||190.2||191.8||n/a|
|Outstanding NZGBs (percent of GDP)||39%||40%||41%||41%||40%||n/a|
|Forecast short-term borrowings (NZ$ billion)*||4.9||9||9||9||9||n/a|
Source: The Treasury, in conjunction with BEFU, 18 May 2023
* The forecasts show current expectations of how short-term cash liquidity needs will be met at fiscal year-end. However, the actual issuance of short-term borrowings, may vary from forecast, based on actual short-term cash needs and an assessment of relative costs. We anticipate that a minimum of NZ$2 billion of T-Bills and US$1 billion of ECP on issue will be maintained. The balance will be a mix of ECP and T-Bills, based on relative cost and market dynamics.
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 31 May 2023, 62% of NZGBs were held by non-resident investors. Over the past 15 years this percentage has ranged between just under 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 European Medium Term Note documentation is maintained to enable longer-dated issuance in foreign currencies.
NZDM maintains regular communication with investors via a variety of channels and welcomes enquiries.
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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