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Treasury gets a tender result for an inflation-linked bond that returns a negative yield before the CPI component

Treasury gets a tender result for an inflation-linked bond that returns a negative yield before the CPI component

Take a look at this NZ Government bond tender result, published by the Treasury Debt Management office at 2:05pm today (Thursday).

Results of Inflation-Indexed Bond Tender 738

Series offered:  2.50%
20 Sep 2040
Total Amount Offered ($million): 50
Total Amount Allocated ($million): 50
Total Number of Bids Received:  27
Total Amount of Bids Received ($million): 72.00
Total Number of Successful Bids: 22
Highest Yield Accepted (%): -0.0750
Lowest Yield Accepted (%): -0.1650
Highest Yield Rejected (%): -0.0550
Lowest Yield Rejected (%): -0.0725
Weighted Average Accepted Yield (%): -0.1032
Weighted Average Rejected Yield (%): -0.0634
Amount Allotted at Highest Accepted Yield as Percentage of Amount Bid at that Yield*: 100.0000
Coverage Ratio: 1.4400

*Individual allotments may vary due to rounding

This is an inflation indexed bond, so yields are as above "plus CPI" at the time the coupon is paid.

The coupon is 2.50%, so $250 for evey $10,000 of these bonds held. But investors paid much more than that so that over the 20 year term of the bond they will yield CPI inflation less 0.1032%.

Twenty seven parties bid $72 miln for the $50 mln on offer and 22 of these bidders "were successful".

This is another canary that says negative rates are upon us. Today's closing swap rates will be interesting to watch.

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37 Comments

nice graphic

Why would you buy a bond thats negative?

If you think it'll be "more negative" in the future

This is only negative in real (cpi adjusted) terms, still positive in nominal terms. So just has to be better than other options.

inadvertent comment

realterms, you pass.

Well tell that to the people who own $16 TRILLION in negative yielding debt world wide (figure from last year so will be a lot more now).
Money printer go Brrrrr...

10
up

Talking Heads ( that would be Adrian Orr and his 'experts' at the RBNZ) seem to have it sussed:

♪♪ Well we know where we're going
But we don't know where we've been
And we know what we're knowing
But we can't say what we've seen
And we're not little children
And we know what we want
And the future is certain
Give us time to work it out ♪♪

The Road to Nowhere - how apt.

I see your Road to Nowhere are I raise you a Talking Heads Once in a Lifetime

And you may ask yourself
How do I work this?
And you may ask yourself
Where is that large automobile?
And you may tell yourself
This is not my beautiful house!
And you may tell yourself
This is not my beautiful wife!

Letting the days go by, let the water hold me down
Letting the days go by, water flowing underground
Into the blue again after the money's gone
Once in a lifetime, water flowing underground

Same as it ever was
Same as it ever was ♪♪

Rates up, insurance up, food prices up, airfares up, rents up, where/when will the deflation appear?

its your savings and TD that are depreciating at a great rate of knots

Tell me about it, hence i am being pushed out the risk curve into either shares or housing. And being in my late 20's with a stable job, housing is the best looking bet. Lets pump up that bubble... :(

its in aggregate demand ... and commodity prices

This bond has a negative real rate, but the equivalent nominal has a yield > 1.25% - so it's not negative.

Where wholesale rates are negative is the middle of next year, where 3 month bank bills are around -12bp

The clean price is $163.05 per $100.00 par redemption value.

That is almost completely irrelevant.

Not to the buyers. They get $100 in return at today's buying power for an expenditure of $163.05 today.

Not quite true, it's a $100 of purchasing power from when it was issued. Also you are getting the coupon of 2.5% so you are paying extra for that privilege

One buys that and the coupon with the $163.05 purchase price. Thereafter, it's the maintenance of today's purchasing power of both coupon and principle until redemption.

Audaxes, the coupon acretes with CPI and is not 100 at maturity?????

I said the principal will be $100 in today's dollar buying power upon redemption if one bought said linker at $163.05 today. I also acknowledged, further down the page, the 2.5% annual coupon paid quarterly would also retain today's dollar value buying power over the term to redemption.

I thought it would be obvious the coupons are purchased in the discounted price of $163.05 and they would retain today's dollar purchasing power, ~ $49.8563 over the remaining time to redemption, for $100 par notes purchased today.

The only number that matters here is the -11bp, the settlement and maturity numbers are largely inconsequential.

Not to one who commits capital.

10
up

I have always kept a safe nest egg of cash in the bank. I am now going to use this cash and buy another rental property. It's not really what I want to do but its what I am being forced to do. Investing in houses is the only thing that seems to make sense now.

The nature of a bond is that with increased risk the return goes up. In the artificial world of Orr and Hawkesby the bank bonds or TD's getting riskier by the day with a risk of an OBR event and the return goes down. All the while Orr and Roberston keep saying be bold and take risks with deposit holders money but we wont bring in a deposit holder guarantee and if one does slip in we will limit it to 50k vs 250k per account holder in the USA and Australia.

Orr / RBNZ and Robertson / Treasury are practicing defacto MMT and inflating asset prices. Orr is pushing for more and more spending and underwriting it with zero or negative interest rates. There is no plan how the debt can be paid back.

There is no plan how the debt can be paid back.

Who wants to repay the debt neither Mr Orr neither RBNZ neither Robertson NOR do they want the Citizen /mortagees to repay.

Now no choice but to continue printing of money ... or the bubble will pop.

absolutely right
any talk of debt EVER being paid back is nonsense ... we need MORE debt not less to keep this show rolling

The more money I am taking out of NZ banks, the happier and safer I feel.

Same have sent some to US in an account with federal guarantee but it only covers US250k. Also have spread it round from just being in ANZ to now have kiwi bank and asb. Purely in savings accounts not TD's that will not be able to be broken when the Sh#t hits the fan and Cindy and Robertson front the media explaining the need for ab OBR event to refloat a trading bank to be kind with the good news it only has impacted the 10% who have money and those with mortgage debt rest easy you will still have to pay it back.

If you go back in time as this is a recurring event to a time when new kings would come to power in England medieval days, the 1st order of duty for the new king was to wipe off all debts owed to the kingdom and start from zero. I can see this happening when there is a new government elected , not this election but next.

As long as debt forgiveness involves acqusition of the assets behind the debt and a black mark behind the individual's name then I'm all for it. Might be a good thing for replenishing the state housing stock.

Debt is wealth
So debt writeoff .... is wealth / income writeoff

Surreal world.

Funny, everyone who talks about "bubble" and "correction" never really explains what a correction means/would look like. I assume it means the financial sector is not bailed out, as before, so what then - nationalization I suppose. A bunch of broke sovereigns, taking over a bunch of broke banks.

I've decided I'm going to take out a hedge, that being a container load of Bic lighters.

I was almost ready to congratulate you for saying Btc there, but no :(
https://chrisgimmer.com/bitcoin-reserve-asset/ great summary of several articles.

Days to the General Election: 19
See Party Policies here. Party Lists here.