Treasury expects to issue $25 bln of Government Bonds in June year; says it will collaborate with the RBNZ to ensure the market functions efficiently & yields remain low

Treasury expects to issue $25 bln of Government Bonds in June year; says it will collaborate with the RBNZ to ensure the market functions efficiently & yields remain low

Treasury’s debt department has nearly doubled its bond issuance forecast for the year to June 30, since its last forecast made just a fortnight ago.

The New Zealand Debt Management’s (NZDM) forecast for the 2019/20 New Zealand Government Bond programme is now set at $25 billion.

When Finance Minister Grant Robertson on March 17 announced the first iteration of his COVID-19 relief package (including a limited wage subsidy, benefit increases and business tax changes), NZDM bumped up its forecast issuance for the year to $13 billion.

At the Half Year Economic and Fiscal Update 2019, released on December 10, the programme was forecast to be $10 billion.

So in essence, the government plans to issue 2.5 times more debt than planned before COVID-19.

$8 billion of bonds have already been issued from July 1, 2019 to date. Hence another $17 billion are expected to be issued before June 30.

Meanwhile Treasury Bills on issue are forecast to be $7 billion at June 30 - a $3 billion increase from that forecast two weeks ago.

“Due to the rapidly evolving COVID-19 situation, further updates may be required as new information becomes available,” NZDM said.

Parliament has given Robertson the mandate to borrow up to $52 billion until June 30 to fight COVID-19.

The relief measures he has announced to date are estimated to be worth more than $20 billion. This is still very much a ballpark figure.

The Reserve Bank (RBNZ) is expected to buy many of the bonds on issue.

On March 23 it announced it will buy up to $30 billion of New Zealand Government Bonds on the secondary market over the next 12 months.

NZDM said it was “committed to collaborating closely” with the RBNZ “to ensure the efficient functioning” of the New Zealand Government Bond market.    

“Implementation of decisions on the speed and composition of purchases have been delegated to Reserve Bank staff, with the objective of keeping yields on NZGBs low and supporting market functioning,” NZDM said.

BNZ interest rate strategist, Nick Smyth, believed the RBNZ's bond buying programme would need to be upsized. 

“It’s difficult to say when an announcement on this front might take place (it is a decision for the Monetary Policy Committee), but, at the very least, we expect the RBNZ to use its operational flexibility to frontload purchases further (it has already increased its weekly purchases to $1.35 billion from an initial target pace of $750 million)," he said.

“Unsurprisingly, there has been a significant reaction in NZGBs to what is an unprecedented amount of issuance, although it is still early days. 

“Roughly, NZGBs are between 8bps (on the 2023s) to 15bps (on the 2029s to 2037s) higher in yield. Swap spreads have tightened.”

For more information, as well as the April issuance schedule, see NZDM’s website.

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15 Comments

If I were bidding into this, as a commercial bank treasury department, and had the capacity to stand back and leave it all the the RBNZ, I would.
If rates were at 10%, and could fall to 0%, it's not worth the risk of non-participation. But what's the worst that can happen today?
The lower rates go, the less anyone will want to lend. An uncontrollable Credit Crunch is coming....

Overseas investors (and banksters) will take most of it, which means more interest payable for NZ inc. Its porkies the government have been paying down debt (check the debt calculator if you dont believe), as they only refer government debt to a percentage of the GDP. Lies on this will be exposed shortly.

The government should just print some money, and hand it directly out to the people in the form of a universal basic income. Paying interest on interest is killing the system, and never sustainable long term. It only favours the few, then fewer. You're not going to get inflation, as all its replacing is money that is nolonger circulating.

I'm sure you're right. But commercial banks ALWAYS have something they can do with any liquidity they have. I'll suggest that there are many 'better' opportunities, still for them than participating in lending like this if they don't have to (Statutory Requirements etc.).

13
up

"And yields remain low"
Ie cheating and fixing the market.
And so it continues. For 12 years all central banks and governments have been engaged in a massive con trick of suppressing interest rates which are MEANT to be how risk is priced.
So, loads of folk took excess risk and along came something that interrupts payments, cue massive flap and attempt to (again!!) pretend that huge debt and leverage and pretence is all normal and cannot be paid back and don't worry we can control it all. BS

And we cant even hold them (central banks) to account as they are independent from government. Great.

Surely you're not suggesting that investors should be responsible for the risks they choose to take on by their own volition??

It's not as if there are such things as insurance and cash buffers that investors can choose to hold or not, to protect themselves from risk. That's crazy talk.

I don't think the Gov't got the legs for this, what happens if we are still locked down in May? Bet they blink first, then they have to pack the smile away and start getting tough.

If the stats show we are containing and dropping infection numbers there shouldn't be an issue with going to 6 weeks to knock the bugga off. If the infection rates continue Jacinda will get hit hard in a loss of faith that she didn't act fast enough.
I see it panning out at 6 to 8 weeks lock down but we then come out and can carry on as normal and hopefully capitalize on being WuFlu free and be a major supplier to the rest of the world. Fingers crossed.

I see 2 weaknesses in the MoH approach:
1. It's been proven Kung Flu can be spread by aerosolization - so everyone should be wearing a mask. See that choir in the States as evidence. Choir practice, nobody symptomatic - 4 weeks later - 45 positive, 2 dead. which leads to:
2. Asymptomatic CAN be contagious - but we don't test at the border unless symptomatic.
I think this leaves our fortunes up to Lady Luck.

If the stats show we are containing and dropping infection numbers there shouldn't be an issue with going to 6 weeks to knock the bugga off. If the infection rates continue Jacinda will get hit hard in a loss of faith that she didn't act fast enough.
I see it panning out at 6 to 8 weeks lock down but we then come out and can carry on as normal and hopefully capitalize on being WuFlu free and be a major supplier to the rest of the world. Fingers crossed.

Time for the smile to go and boots on street already. Instructions are pretty clear but up our way swimming is still a thing and the building site across the way is banging away. (Kiwi builder) Building was happening all over the place last week in the adjoining blocks, most of it Chinese. They've all shut down now.
All flouting is borderline but I suspect Level 5 is needed for kiwis to understand.

I aren't sure about this. Is there only one builder? Sure, if he has an apprentice, then they should be at home. But if a builder has all the equipment and building materials he needs on site, why not let them work? They are essentially in a isolated environment.

We have a house being built one street over, the builder was still working on that too. But it didn't really bother me because he was just by himself, so still in his bubble. Interaction with other people is what needs to be minimised, delivery of more building materials would be the only case where this might happen (surface contact most likely). Or potentially if there is an accident on site and they need help.

What - surface contact - mouth-to-mouth CPR?

All government spending is made by creating new currency, borrowing is not used for the purpose of funding the government. As government spending creates additional bank reserves which must be lowered with bond sales to maintain the reserve banks interest rate settings. It is all explained here by economist Steven Hail. https://independentaustralia.net/politics/politics-display/modern-moneta...

Thanks for that link treadlightly, makes for interesting learning.