Government's debt manager raises NZ$900 mln in bond auction ahead of possible borrowing programme hike next week

Government's debt manager raises NZ$900 mln in bond auction ahead of possible borrowing programme hike next week

The New Zealand Debt Management Office, a unit of Treasury that acts as the government's debt manager, sold NZ$900 million worth of bonds today in an auction that attracted bids worth about NZ$2.1 billion.

The latest Crown debt issue comes ahead of next Tuesday's pre-election economic and fiscal update, where the government's borrowing programmes for both the current and next financial year are tipped to be increased to cover the NZ$4 billion Earthquake Commissioncost blowout and slower expected economic growth.

After issuing NZ$20 billion worth of bonds in the 2010/11 year, the NZDMO currently intends to issue up to NZ$13.5 billion in the current 2011/12 year and NZ$12 billion in the 2012/13 year.

The NZ$900 million issue follows a record equalling NZ$1 billion bond tender in late September, the day before New Zealand's sovereign credit rating was downgraded to AA from AA+ by both Standard & Poor's and Fitch.

Today's tender saw NZ$500 million worth of bonds due to mature on April 15, 2015 sold, NZ$300 million due to mature on December 15, 2017, and NZ$50 million set to mature on each of May 15, 2021 and April 15, 2023 sold.

The weighted average successful yield on the 2023 bond was 4.85%, which is up from the record low 4.45% on September 29. On the 2015 bond it was 3.48%, 2017 bond 4.21% and 2021 bond 4.70%.

The coupon rate on the 2015, 2017 and 2021 bonds was 6%, and 5.5% on the 2023 bond.

A total of 51 bids were submitted for the NZ$900 million worth of government bonds offered with 23 successful bids.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

68 Comments

Is that borrowing at about 5% of GDP pa ?

More like 0.5%, but that's not really the point anyway, because it's of various maturities, so it's not like all 900million has to be repaid out of 1 year's GDP.

I was referring to the total borrowings forcast for the fiscal year.

900million = $1500 for my single income family of 4.8 people.  This borrowing is just a tax hike by subversion.  I'd rather have an honest in your face tax hike and be debt free.  That would put real pressure on prudent budgeting, this borrowing is such a subtle tax noone really cares.

Not really. Why would you pay for transport and other infrastructure projects out of today's tax take, when that infrastructure will (if it's any good) be used for 3+ generations to come? You spread the cost of it, over it's useful lifetime and borrow (some) of the money to actually build it now.

If the government can raise money relatively cheaply then it makes sense to do so (to a point) as long as the proceeds raised are used to fund things that will increase the tax base in the future, such as economic infrastructure and education.

Whether they actually will do something useful with this money, however, remains to be seen.

Do you really believe they are using the money to finance infrasturcture.  The only infrastructure I have heard of is a cycleway, which may be good considering peak oil, but hardly that expensive.  No this money is being used for the current account like a payday loan to pay the power bill.

Quite so skudiv, borrowing to pay the grocers bill. What a great idea!

"Why would you pay for transport and other infrastructure projects out of today's tax take"

That's certainly the conventional wisdom but there are a couple of problems:

It can only work if we have growth in the size of the economy greater than the interest rate and the investment is not made redundant by unforseen changes. Good example was the think big projects that were uneconomic when the price of oil collapsed, the debt had to be paid from general taxes not returns on the unfortunate investments.

It also, wrongly, assumes that there will be much less demand for future capital projects, if you borrow for those as well the total debt will expand faster than the growth in the economy.

It therefore virtually guarantees you will not run a net surplus in the future as any cash surplus is required to pay interest on previous borrowing.

What you're borrowing is someone elses surplus or capital. With the cash flow the Government has there is no reason that the usual type of ongoing infrastucture investment (roads, schools etc) should not be paid from the Governments own surplus  - todays taxes and levies. That's how you save for the future, and would make far more sense to me than having NZ super funds, for example, being placed on foreign sharemarkets or bleeding our collective capital to offshore elites in never ending interest payments.

The government borrowed another NZ$900 million today. Much of it is being used to pay for working for families, tax cuts for those on higher incomes and for NZ Super for people who work. The young will have to repay the debt. Some of it is due to be repaid on 2023. John Key will be long gone by then. And the youth of today should remember who decided to borrow the money they will have to repay.  

http://www.interest.co.nz/opinion/56301/bernard-hickey-talks-marcus-lush-radio-live-650-am-about-government-borrowing-allan-lu  

It's not going toward infrastructure.

"make far more sense"

I do not agree, in effect  that means your pension will have a lesser return, and probably carry a bigger risk of failure/defalut so in effect its a tax on your future.

regards

You are really being suckered into is the Pollies only looking at this an maybe their next election term so are "saving" money now but to spend it later, its vcan kicking.

This is because you are not looking at the bigger picture and in fact loading future generations with your bills when they may not want or need your infrastructure that makes sense to you today. 

Not doing this  makes sense when you look at the longer term, the bigger picture, the fact that there are multiple projects and changing needs and the  rolling improvements effect of a Nation...and the debt interest paid.

So for instance today I want a 5billion road.....so OK I pay for it over say 20 or 40 years, I have to borrow which costs....and the borrowing costs build up significantly...at least 5% per annum.

So we could do a 5billion project every year and at year 10 we are paying huge interest...because we are doing so many projects.

Or we do a 5billion project but pay for it over 3 or 5 years....we pay little interest.....the difference is those who want the project today pay the upfront value of it.....Im sure you would be annoyed if a previous generation had dont this to you ant you wanted a 5billin road but found that there was so much debt being paid back from outstanding projects that you couldnt afford to do it.

As a further example....10 years from now with energy costs through the roof roads will be fairly empty....I suspect that at least 50% of ppl using cars today wont be in a decade, they will need (lots of) public transport.  However on your model we are still paying for a road we no longer can use and the poorer ppl wont be using it so in effect its a regressive tax on them....that isnt fair and it leaves you no money to do public transport......

 

regards

 

 

 

now with a World Cup under his belt; Jonkey will be able to borrow another sneaky 1.8 Billion and no-one will even notice... or if they do, think to comment...

 

And with a smile and a wave and rugby world cup, Nats win another 2 terms... yay!

Any way of finding out who the buyers are?

I am sure there is a beauratic process.  The initial buyers are called Primary Dealers, and they have an informal arrangement with govt and each other, they will always buy the bonds and participate in the auctions.  Then they clip the ticket and sell them off to kiwisaver or the Chinese, or whoever else wants some taxpayer guaranteed paper.

No, but details of what is needed to be an eligible institution are here

http://www.nzdmo.govt.nz/securities/tendering

but of course the tender counteparties may well sell the bonds in the secondary market anyway.

Harvey- Norman offers 50 months interest free - my God what is wrong with this country - unbelievable !

Time to email Li in China and Sharma in India - setting up a few stores with Harvey- Norman stuff from NZ.

Well if they are even as 1/2 as switched on as us and can see a huge depression / problems coming and have huge over-valued stocks then getting rid of it no matter what is going to be on their minds.....

So 50months is like the sub-prime mortgage game.  If the good risks are tapped out or bright enough not to buy right now that leaves the marginal cases to get in the door....ppl who can maybe only afford to pay back $30 or so a month and arnt the brightest penny.

Good for me as this suggests some really good January sales on whiteware.....Im going to hand on until then for a new fridge me thinks....

regards

Olly Olla !

Secure your tickets for the Rugby World Cup in 2015 now. A boat, a farm, a car, a house, a holiday, a new wife or a new washing machine – no problem - our company “Safe Money Sharks Ltd” provides you with all information and low rates.  Ring the 0800… number.

Austerity comes another step closer in NZ..   As I look at the pictures of the riots in Greece this morning, I can't help but think that is going to be us in the next 5-10 years.

Not just us.....there are a lot of countries in far worse shape right now.....I suspect that we will be watching the world on fire in less than 10 years.

regards

I believe it is in our best interest to try and change the trajectory now.  Otherwise we are no different.

Yes, but when you look at say Italy....they had the warnings 3 years back to do some serious changes. They did not, they are trying to do them now and they are too late, the can kickers didnt want to know.....if they had I dont think they would be in the pickle they are now.

If NZ choses to reverse the tax reductions from 2008 and had a 45% for over $150k and did a CGT and a land tax we would be a long way towards balancing the books, however there would still be a shortfall........and we will be seeing shortly that Peak oil will start really hurting us......

So yes it needs to be now.....the Q is what new trajectory  If we dont start we will be in a bad way, but our Pollies will do what every other countries Pollies have done....and either party is better than the other.

regards

There is a lot of excellent thinking going on here, this is what our politicians should be debating, in a mature way.  Not mudslinging, and petty squabling.

I'm all for it but how do you do this? Do you really think that cutting welfare, not to mention essential services, in order to stop borrowing won't  have any consequences?

And if you increase govt income by increasing taxes instead of cutting the outgoings, well: according to the often-quoted figure, the govt "normal" borrowing is 300 million/week. According to this table  http://www.treasury.govt.nz/budget/2007/taxpayers/01.htm, there are 308000 people earning over 70K. Even if you "reversed the tax cuts" as mentioned on another thread and taxed these people more, they'd have to pay an extra 1K/week in taxes to balance out the amount borrowed by the govt. Not quite realistic, is it? Even a more balanced mixture of spending cuts & increased income probably wouldn't work and "save us" now (not that any party would ever have the guts to try and implement that anyway).

Hi,

You cannot hammer the PAYE much more, hence why we have to look at taxing the un-taxed....

regards

But how so? The untaxed, unless you mean the many people on low/average incomes who don't pay any tax at all, are those who are rich/powerful enough to dodge tax (that's the reason why they are untaxed in the first place, isn't it?).

 the many people on low/average incomes who don't pay any tax at all  

Maybe you are thinking about the nett of income tax and working for families.  But there is also the pernicous gst -- a regressive tax which people on low/average incomes have to pay.  Plus local government taxes which they pay either directly (rates on own proeprty) or indirectly (built into rents).  

It's a good debate to have, and it may mean a bitter pill to swallow now.  I bet the Greeks are wishing they had swallowed a bitter pill when they had a chance.  Now they are being forced to take the pill and it is a bigger, more bitter pill then we will have to swallow if we can act now.

Maybe the greeks are wishing that banks and their shareholders had swallowed the bitter pills instead of trying to transfer the cost their (the banks) risky decisions to taxpayers.

Yeh true, thing is though, Geek public debt = 100% when they joined the EMU.  A default was pretty likely before the GFC, but they had some good financial advice from Goldmansachs.

This really shows how irresponsible govt's have become.  If raising taxes is unfeasable (and I'm not saying it is) how are we going to get out of this mess in the future when our debt levels will be higher, our interest bills will be higher, and our interest rates may be higher too.  These issues should be adressed now, not put off into the future. 

It may not be unfeasable but raising them enough to actually make a difference to our current account deficit probably is.

And even if the govt did raise the taxes, I am not convinced they'd use the extra income to reduce their borrowing. They'd probably just find another scheme that appeals to people to try and gain a few more votes (yeah, I'm disillusioned when it comes to politics, always have been).

Good point, and maybe we need to look at income and expenses.  If I couldn't balance the books for my own business, then I wouldn't be in business very long.  This is not something that should be kicked down the road because the answer is too hard to work out.  We can't afford to do that.

The whole Euro crisis has been a bit of an eyeopener for me, about how out of controll governments can wreck a country, by trying to please everyone all the time.  I want a government that is working in the best interests of a stable financial future, even when it means a bit of pain.  

@Skudiv, yes but how?  Genuinely interested in ideas, but I am actually of the opinion that it just isn't possible.

Maybe we could flick pass that one to our favourite economist Bernard Hickey.  He might be able to give it some leverage, and create awareness.  politicians work for us, and will do whatever it takes to get elected.  Even if it means a flip flop on policy.

All I really know is that if we don't make a bit of noise about it, they will accept that as acceptable behaiviour and will have no incentive to stop. 

And there lies the biggest problem... identifying what the "it" really is... also the "they" are put there to ensure the status quo remains.

Governemnt borrowing to pay the current account = it.  Adding debt to pay for things now, which is poor budgeting skills.  Very poor budgeting, I can't emphasise this enough.  Politicians have worked out that tax cuts are a good way to get elected, and they know that not many people realise that borrowing is another way of taxation.  Borrowing is future taxation spent today.  If we can't get a real democratic opinion and action on this important issue then we can blame the politicians for not listening to us. 

OK, now we are getting somewhere.  Can I ask you if you believe that Keynesian economics is sustainable and workable system, and that if we continue to make adjustments (i.e in this case reduce govt spending / borrowing) we can continue along this path forever? 

Or is the real issue that Keynesian economics favours those that are closest to the money?

 

I don't beleive that we can continue to run deficits forever.  This is because I can see that in the last 30-40 years countries all around the world have been hell bent on building up deficits, and now we face the greatest financial challenge of our generation.  All the PIIGS are close to default, and it wont take much to tip them over. 

Why should NZ continue down that path when right in front of us we are witnessing what happens if you get it wrong.  If Keynes theory is correct, I doubt government has the will, or the ability to follow it exactly.  Every person, and every business has to live and operate within limits.  A business that uses long term funding to pay its current account, or a family that does the same to buy the groceries is headed for trouble.  How can that theory not apply to govt?

I don't disagree with you that we need change, but really its all ultimately pointless unless we are talking about major changes.  We are past the point where tweaks and adjustments will work .. just look at the UK, US, Europe.. and they are still running around like headless chickens trying to protect the status quo at all costs.

The current system I believe will fail in the end no matter what adjustments are made along the way.  Borrow less, borrow more. Spend less / more.  tax less or tax more, interest rates up down, sideways.. each adjustment just delays the inevitable.   Is not a question of economics, its just a case of simple arithmetic.

I can see the result of inaction, and that is a good motivation toward action.  I don't really want to go through the books of the government and work out what to cut, and where to increase taxes.  It is not impossible yet.  There is time to act, increasing the debt makes it harder.  I am not happy with the system but it is what we have. 

"Money is the religion of our age, and Economists are the high Preists showing us the way to salvation" - Someone said it.

Oh high Preists lead us forward, into a glorious new age of prosperity.

You dont appear to undrestand Keynes.

"Keynesian economics is sustainable and workable system" yes it is, except this isnt what we have right now.  Indeed I suspect several other economics models are sustainable and workable when not taken to extreme and where the FULL aspects are implimented not just the "best" bits.

So for instance keynesian doesnt just say spend to avoid or minimise the downturn, its also about saving in the booms to slow the booms somewhat and give you a rainy day fund to minimlaise the busts....That essential part was not followed because we were not doing keynesian, we were doing neo-classical....or some nasty voodoo variation depending on how bad it really is under-neath..

So right now the globe is suffering from broken neo-classical policies taken to extreme and the "fix" is a poor attempt at keynesian ie stimualus too little too late......its like taking the worst of both and expecting a good outcome......its simply nuts.

"In this case reduce govt spending / borrowing" this isnt keynesian, its possibly Austrian  or some other mess, i will label it 'voodoo".  Keynes clearly says when up against the zero bound the Govn needs to step in and spend.  Growth through austerity isnt going to work and it isnt Keynesian, its the opposite....  So to make it clear, austerity will kill economies that do it....and we get to watch the outcome from the ones doing it now, hopefully from the outside.

"Keynesian economics favours those that are closest to the money" yet again a statement proving you dont undertsand Keynes at all IMHO.  You are either intentionally or accidently mis-labeling current events as Keynesian to my mind.  Given how frequent this has been occuring in the last three years the ignorance or purpose is ugly.  Laissez faire / voodoo / neo-classical economics has got us into this mess lets not forget that most important fact.

Yeah sure we have a horrible mis-match of economics right now that indeed seems to favour those closest to the money.....I dont think thats intentional, I think the desperation is avoiding a 2nd Great Depression and political suicide for the Pollies in charge that results.

regards

 

 

So true, how often lately I have heard, "thats not true capatilism, keynesism, randiteism, free marketism, neoliberalism, neoclassicalism etc.."  I run a business, I don't know these theories very well, all I know is income needs to be greater then expenses, otherwise broke.  It's a simple formula proven to be true, and easily implemented all over the world for all of time.  Thats the kind of economics that works in the real world.

A first step in discussing Keynes is understanding that the Keynes economic prescriptions as written by Keynes and the Keynes economic prescriptions as potrayed (mis-represented) by neo-classical economists are totally different things.

if we want hospitals 'police'pensions',rent subsidies,working for families tax credits etc then get used to borrowing unless you want to pay more tax.

Borrowing is a tax, it's just a tax that you don't have to pay today. 

Please stop spending and borrowing so much in my name.

I only changed plans and stayed in NZ because we finally got rid of the Clark disaster, but the situation is just carrying on along the same trajectory.

God help us if Goff ever gets his wish to accelerate the demise of NZ.

Labour will get in, its just a Q of when....move on now.

regards

 

@NIck.  Labour and National are the same thing. Two sides of the same coin. Its like when your mom made you think you had a choice by saying you could have carrots or cauliflower.. you still got veges.

Both National and Labour are big government socialists, who cleverly craft policy to favour corporates and bankers at the expense of the people they are supposed to represent.  Through the media they would have you believe there is a choice, but the debates are directed to issues that seem important to the average person. 

For example, you will always hear debate about; Asset sales, tax, immigration, and jobs.  Enough so you think there is a difference, but to keep debate away from changing the social or economic system.

Thats because Pollies have learned that the vast bulk of ppl/voters dont want it changed.....

regards

I'll agree with you there Steven..

The government you elect is government you deserve.

"you still got veges"

Of course veges are good for you.

"cleverly craft policy to favour corporates and bankers at the expense of the people they are supposed to represent"

Well to start with if they were clever it would work out.....and as for crafting policy, the policy has been hands off laissez faire.....and it looks like an abject failure.

If you accept that teh situation is so simple that "to favour corporates and bankers" well i dont think its taht simple, so I dont agree outside the US anyway that this is the case....

 

regards

Can you please reconcile your idea of "the Clark disaster" with the fact that under the Clark government government debt was reduced, and that under the Key government debt has increased.  

So who's going to pay all this back?

Unless we go down the road of Greece and default, our kids will pay it back.  Or we stop this irresponsible behavior now and grow up.

Inflate the debt away?

Inflation only works for the debt that is held in NZD.  A lot of it is overseas debt, and I assume they want to be paid in USD or RMB(correct me if I'm wrong).  Inflating away the debt is really bad news for kiwisaver funds that are holding the debt for your retirement.  Because its like asking to inflate away your retirement money. 

Hi.

Actually the debt on govn bonds is NZD denomivated I believe....hence why we cant be seen to be devaluing the NZD or our rates will climb.

Happy to be corrected with some data...

Also a depression and deflation is even worse than inflation....and its prety minimal right now anyway, core is still 2%

regards

 

Where is WOLLY?

I think you might have taken his spot, by sheer participation rate skudiv!:)

And what about Gummy Bear Hero? Don't think we've heard from him for a few days.

I agree.  Some more regulars.  I just woke up this morning and thought why are we borrowing so much money, are we broke?

Thats the arguement councils are using too, when they want to build stadiums and libraies. However you also have to pay for running and maintenance and upgrading costs to those new assets, which are costs that future generations have to pay. Many are underused as it is. Just wish there was some consolidation to reduce the waste of resources. 

However the question is, is it sustainable and responsible to shift that debt into the future, for future tax payers. Especially as many of those future taxpayers will be leaving to live in Oz and other countries, as NZ wages are so low, and they can't afford to buy accommodation in NZ..

 "Decrepit foreign fishing vessels crewed with sweatshop Asian labour are destroying New Zealand's international reputation for safe and sustainable food and are ruining our ability to catch our own fish."

 http://www.stuff.co.nz/the-press/national/5835608/Probe-exposes-fishing-underbelly

Govt couldn't give a stuff....Maori reckon there are no worries...follow the money!

NZ clean green slime.

Fish for dinner anyone?

So much for maori claims to be looking after the land and sea.

regards

It's a Ministerial enquiry steven...one that has taken nearly three decades to get started...so we should look to see the findings will slosh the Whitewash over the whole stinking rotting pile of fish heads and come to the conclusion that apart from some minor mistakes and one or two unhappy Asian peasant fishermen.......... all is well in the fishing industry.

It wont go anywhere anyway.....too many maori MPs that are "needed". 

regards