The results from the latest inflation indexed bond offer by the Treasury's Debt Management Office have been released.
The coverage ratio was marginally down on the May tender and again a majority of bids were unsuccessful.
With the latest CPI number coming in at 1.50% pa. this would give the IIB's an indication nominal yield of approxinately 4.33%.
The current yield on the NZ government bond with the longest duration (maturing in 2023) is approximately 4.48%.
| 3.00% - 20 September 2030 | Today # 522 | Prior #519 | Prior #517 | Prior #515 |
| Series offered |
tender July 10, 2014 |
tender May 8, 2014 |
tender Apr 10, 2014 |
tender Mar 14, 2014 |
| Total Amount Offered ($million) | 200 | 200 | 200 | 200 |
| Total Amount Allocated ($million) | 200 | 200 | 200 | 200 |
| Total Number of Bids Received | 37 | 54 | 74 | 67 |
| Total Amount of Bids Received ($million) | 525 | 565 | 445 | 451 |
| Total Number of Successful Bids | 5 | 4 | 34 | 25 |
| Highest Yield Accepted (%) | 2.840 | 2.810 | 3.030 | 2.950 |
| Lowest Yield Accepted (%) | 2.825 | 2.790 | 2.980 | 2.880 |
| Highest Yield Rejected (%) | 3.000 | 2.995 | 3.190 | 3.175 |
| Lowest Yield Rejected (%) | 2.840 | 2.815 | 3.030 | 2.950 |
| Weighted Average Accepted Yield (%) | 2.8266 | 2.798 | 3.0116 | 2.9257 |
| Weighted Average Rejected Yield (%) | 2.8668 | 2.8496 | 3.0704 | 2.9884 |
|
Amount Allotted at Highest Accepted Yield as Percentage of Amount Bid at that Yield* |
6.1 | 100 | 19 | 16 |
| Coverage Ratio | 2.625 | 2.825 | 2.225 | 2.255 |
*Individual allotments may vary due to rounding.
1 Comments
Craig
There is actually now a 2027 nominal bond to compare to.
As mentioned previously, looking at the past 12 months historical inflation number and assuming that will persist for the next 16 years when comparing to the nominal equivalent, is incorrect analysis and misleading for the average punter.
Instead, you should deduct the nominal yield from the 2027 nominal bond from the 2030 inflation linked bond real yield to determine the implied break even inflation rate. The break even inflation rate is the average expectation of inflation for the next 13-16 years in this case.
Or look at it this way:
nominal bond yield = expected inflation rate + real yield
Inflation linked bond yield = actual inflation rate + real yield
The difference in value between a nominal and inflation linked bond is therefore the difference between expected inflation and actual inflation i.e. unexpected inflation!
If the break even inflation rate implied by the market is more or less than what you as an investor expect, that informs your decision whether to be over or underweight inflation vs nominal bonds.
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