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Martin Whetton on how overseas investors view New Zealand government debt

Bonds / news
Martin Whetton on how overseas investors view New Zealand government debt

By Gareth Vaughan

New Zealand's $33.8 billion record current account deficit was a shock to overseas investors in NZ government bonds, but is ultimately probably not something people will lose a lot of sleep over, says Sydney-based interest rate strategist Martin Whetton.

Statistics NZ last month reported the annual current account deficit reached $33.8 billion last year, equivalent to 8.9% of gross domestic product, the worst ratio since measurement began in 1988.

In response credit rating agency S&P Global Ratings told Bloomberg the deficit was; "catching our attention, the persistently weak and worsening current account position of the New Zealand sovereign, particularly given that it has been quite weak the last year or two and our forecasts are for it to narrow.” This led to fears of a potential downgrade to NZ's S&P sovereign credit rating.

In terms of overseas investors who buy NZ's government bonds, Whetton says the current account deficit is something they'll look at.

"And obviously when that number came out recently there was a bit of a shock to the market because there was the immediate response from S&P that suggested that the rating could be under threat as a result," Whetton said in the latest episode of's Of Interest podcast.

"A decision on that can take some time, And I think if we just cool down for a moment and say 'New Zealand is in a very solid position, it has got a strong economy, and it does have very low debt-to-GDP at the government level,' then it's not something that people will lose a lot of sleep over."

"There are investors who simply have hard mandates around credit rating, but when you're starting at the top of the tree in ratings, very few people would not be able to buy New Zealand [government debt] so that's not an issue if there was a downgrade," said Whetton.

S&P has an 'AAA' sovereign domestic currency rating with a stable outlook on NZ. This rating assesses the country's capacity to meet obligations denominated in the NZ dollar, which almost all government debt is issued and repaid in. (See more on NZ sovereign credit ratings here, and credit ratings explained here).

In the podcast Whetton also talks about the attraction to overseas investors of NZ government bonds, the NZ yield premium over other similarly rated bonds, the big issues in sovereign bond markets at the moment, why he thinks NZ government debt is at a sustainable level, and finally how countries get into trouble with their sovereign debt.

"Typically it's borrow in a foreign currency. The benefit of countries like Australia, New Zealand, the UK, Japan, Italy, [is we] borrow in our own currency. So we pay it back in our own currency and you can always print more of that currency. Now the purists would recoil at that comment and I understand why because it can be inflationary. But if you need to solve it that way you can," Whetton said.

"You also, as we in Australia and New Zealand have found in the last couple of years, can get your central bank to buy [government] debt. I would not say that is the way you do things. Having a fiscal programme that is credible over the medium to long-term is probably your best starting point."

*This episode follows a recent one with Kim Martin, Director of New Zealand Debt Management which is the Treasury unit responsible for managing the Government's debt. And you can find all episodes of the Of Interest podcast here.

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"the annual current account deficit reached $33.8 billion last year... the worst ratio since measurement began in 1988."

And if the answer to that is

"you can always print more of that currency. Now the purists would recoil at that comment and I understand why because it can be inflationary. But if you need to solve it that way you can,"

then the CPI is going up, dragging the OCR along in its wake. Inflation and Mortgage Rates have topped out I'm told. We'll see about that.


Worked for the Weimar Republic didn’t it, just print print print not a problem. Won’t need to use wheelbarrows anymore so the wheelbarrow is safe at least. What could go wrong!


Our banks are happily creating hundreds of billions of dollars for us to buy houses with and these deposits are indistinguishable from those created by the governments spending once in the banking system. What differentiates the governments spending from bank credit is the currency reserves which the government issues to the banks when it makes payments and every dollar that the government spends created a new dollar of reserves while taxation deletes both the bank deposit and the reserves again. 

The government can also choose to reduce these reserves again by issuing bonds and so bonds are just a different form of reserves and don't finance its spending. Just as QE swapped the bonds back into reserves and wasn't money printing as it is often referred to. 

L. Randall Wray
Understanding Modern Money: How a sovereign currency works


Honestly, I'm far more concerned about the worsening crime rates in NZ. Increasing gang activity. 

Young teenage girls, younger even, just arrested in Christchurch after stealing a car and using it to ram raid a supermarket.

Is this real life right now? New Zealand is fast becoming unrecognisable. 

The current account deficit is a symptom. Getting upset about it won't help, we need to focus on contributing something to the world. 


Or is the crime a symptom of the spending of future income now by excessive borrowing.

The deficit is a problem but one we've ignored for forty years, one more won't matter surely.


Humans infallibly will choose to ignore a mounting crisis until it is almost too late 

Unfortunately for humanity quite a few of those crises wont be fixable if we wait for those moments...  debt bubbles, pandemics, climate change, nuclear armament by rogue states and AI development to name a few.

At some point we might need to look at ourselves and change some of the ways we manage ourselves to account for longer term issues.


Id like my government issued SOMA/Whiskey now please.


Balance of payments out of control. Will this get us to a banking downgrade...? Probably and borrowing offshore will cost more. 

Interest rates higher for longer...


What do you mean by borrowing offshore? You mean overseas investors holding NZ dollars swapping those NZ dollars for govt bonds? What's the drama?


Overseas appetite for NZ Govt bonds is still high - not least because the return is relatively good. Add to that the strong domestic demand (incl from Govt owned ACC Fund!) and it is clear there is nothing to see here in the short-term.

What is unsustainable in the long-term is a developed country exporting primary goods (milk powder, logs, etc) and importing fossil fuels and high tech.