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BusinessDesk: NZ government debt sales fall behind run rate needed to meet $13 bln annual target

Posted in Bonds

By Jonathan Underhill

The government's debt sales have fallen below the $1.1 billion a month needed to meet this year's bond tender programme, which may force the Debt Management Office to offer higher yields to make up the shortfall.

The DMO has sold about $600 million a month of bonds over the past three months and to meet its target of $13.5 billion for the fiscal year it would have to lift the sales up to about $1.2 billion over the remaining four 4 months.

This year's target comes after the government raised a record $20 billion in the debt market last fiscal year, taking advantage of demand for the nation's relatively high-yielding debt as a haven from Europe and an American economy that at the time looked headed back into contraction.

It will have to cast the net wide again in 2013, when it has $11 billion of April 15, 2013, bonds coming due. By then the Reserve Bank is expected to have resumed raising interest rates as the rebuilding of Christchurch puts pressure on resources.

"If pressures in Europe continue to ease, and the RBNZ moves back into tightening mode, then investors are likely to require higher bond yields to attract sufficient demand," said Christian Hawkesby, head of fixed income at Harbour Asset Management.

The yield gap, or spread, on New Zealand 10-year bonds versus comparable US Treasuries has widened since the early February, when Greek leaders first signalled they would agree to austerity measures needed to win a second tranche of bailout funds. The spread has risen to around 220 basis points, the highest since November.

Hawkesby says the smaller size of recent debt auctions partly reflects that New Zealand bonds "have fallen off the radar of some international investors as pressures in Europe have eased, reducing the relative attractiveness of the New Zealand story."

Foreign investors held 56.7 percent of government bond and Treasury bills on issue in January, down from 57.8 percent in the same month last year, according to Reserve Bank figures.

The government will update its debt funding needs and bond sale plans with the budget on May 24. In the Budget Policy Statement on Feb. 16, the Treasury cut its forecast for gross domestic product in the year ending March 311.9 percent, down from a previous estimate of 2.3 percent. Growth in 2013 was cut to 2.8 percent from 3.8 percent.


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Sell the debt to the

Sell the debt to the RBNZ...simple

@ negative yield if possible.

@ negative yield if possible.

Mr Magoo sees a different

Mr Magoo sees a different picture....bubble activity in Auckland supported by the wealthy shifting loot to NZ to escape the govt thieving going on overseas....everywhere else nothing.....just a big dark deep hole.
The chch rebuild bonanza is a huge load of BS...but that will not stop the price fees costs wages and gst thieving from taking place. Fletchers will have their slice of flesh..count on it.
The smart are slamming shut the wallet and ignoring the banking cheap credit drugs push.
Retail is set to be smashed this year, everywhere but maybe Auckland which is where the unemployed are drifting to.
About now the govt Keynesian infrastructure splurge on borrowed money will come to a more miles of gravel covered windscreen smashing roadworks....the truth will energe of a chch exodus to aus and to elsewhere in NZ...The rebuild is going to be more like the Cathedral event...a tear it down and slap up something smaller and cheaper...but most of the money will depart the city.
And as the ocr is raised to stop the inflation, remembering the two year time lag!...those trapped in a mortgage will feel the PAIN and they will spend less....the foreclosures will increase...the taxpayers will be bailing out the banks...and that will mean what for taxpayers....
Remember Magoo's 'big deep dark hole'