NZD tests US80c ahead of $1bn Govt stock tender

Are people watching this?

Long term interest rates are rising because the New Zealand government is likely to borrow up to NZ$20 billion this year, according to ANZ. The official borrowing plan is for NZ$16.5 billion this fiscal year, but at the current rate it is likely to rise.

I think part of this massive increase in recent weeks is the NZDMO storing up now in case financial markets freeze again later this year (quite possible with the Euro debt crisis and the US budget crisis).

But all this borrowing will cost all New Zealanders either directly through the interest payments on the debt (retrieved from either future taxes or future spending cuts) and through higher interest rates for all long term borrowing (through higher corporate bond yields and bank bond yields).

Less than a third of this borrowing is related to the earthquake. See below.

Most is to pay for bribes made by middle of the spectrum politicians to convince voters to put them into power and keep them. Working for Families, Interest free student loans, free early education, and the tax cuts for the rich. All of these were meaures that have blown out the budget deficit in the last 5 years.

This is debt being loaded up onto our kids (if they're stupid enough to hang around) so we taxpayers can consume more now.

Is that fair or sustainable?

Here's the detail below on how much is being spent on the earthquake.

http://www.interest.co.nz/news/53022/english-sees-nz85-bln-govt-spendin…

Finance Minister Bill English has warned the Government will spend about NZ$8.5 billion over the next few years to help rebuild Christchurch.

“The earthquakes do not fundamentally change our economic situation or the Government’s programme,” English said in a speech to the Wellington Employers’ Chamber of Commerce.

“They simply make the task of returning to surplus a little more difficult.”

English said Treasury estimated the direct cost to the Government of the two earthquakes at about NZ$5.5 billion, which would be fully provided for in the Budget on 19 May.

“About NZ$3 billion of this relates to our share of local government infrastructure, roads, insurance excesses on schools and hospitals, temporary housing and land remediation agreed after the September quake, demolition costs in the CBD, ACC costs and the business support package," English said.

“The remaining NZ$2.5 billion will cover expected costs of decisions we have yet to make – the biggest cost is likely to be remediation of land damage from the February quake. The final cost of land remediation is yet to be determined," he said.

Re: Fixed income;

Despite the large size of today's tender the RBNZ came to the rescue: offering to fund position (RRP agreements - government collateral acceptable) to the tune of NZD 500 million during it's open market operations yesterday. 

View details here: http://www.rbnz.govt.nz/statistics/govfin/d3/data.html?sheet=0 

Total outstanding repo funding stands @ NZD 900million.

Furthermore, the government's over borrowing ahead of an interest rate rise/credit downgrade is equally finding it's way back into the banking system via the RBNZ.  

This release;  http://www.rbnz.govt.nz/statistics/rbnz/f1/data.html?sheet=1   shows the government has deposited NZD 8.458 billion with the RBNZ.

RBNZ offers the government OCR when the average cost of funding to the on lent funds to the banks is bank bill rate + 6bps (~2.70%). 

Not a bad deal when one considers the average cost of government borrowings is ~5.83%.

Let me at the F12 bid key - I will take all the government offers. 

Bernard to answer your question:

In the case of open market operations the RBNZ is temporarily printing money to fund position i.e. it is cash flow positive for the the banks to buy longer dated government securities at tender and submit them as collateral at the RBNZ's OMO. 

Addmitedly these funds are redeposited back to the RBNZ and get recorded as a liabilty to act as collateral for real time clearing.

Nonetheless, these bond purchase come at a cost to the taxpayer and a profit to the banks and are purchases that necessarily would not happen otherwise. The banks get to keep the collateral on their balance sheets under internationally recognised accounting rules.

If this continues indefinitely as happened back in 2004 - one institution funded (cornered) just the about the total oustanding amount of a particular issue to maturity for a positice ~4.0%  return - Net result, we the taxpayer gave away in my estimate NZD 60-80 million in carry profits to a foreign Sydney based institution. 

The government deposit lodged with the RBNZ bank is not a case of the RBNZ printing money, but rather the government printing it - issuing promises to pay. The proceeds (money - and there are no capital requirements for banks to hold these assets) are passed through the RBNZ which just acts as a government conduit.

The government is privatising a public liability and passing the proceeds at a discounted rate to banks to do with it as they wish. Public goods are not being purchased. And there is a significant carry loss and extra profit making potential available to the privately owned banks.  We pay twice to borrow our own liabilty.

Stephen

Thanks for this clarification, I assumed this all along.

What a deal!

I am wondering if this sinks in,  hopefully at least into some of the Kiwis' awareness.