Govt's debt manager sells NZ$2.5 bln worth of 13-year inflation indexed bonds at 1.96% in its biggest single deal ever

Govt's debt manager sells NZ$2.5 bln worth of 13-year inflation indexed bonds at 1.96% in its biggest single deal ever

Treasury unit the New Zealand Debt Management Office (NZDMO), which manages the Government's debt, says it has borrowed NZ$2.5 billion today through its first issue of inflation indexed bonds in 13 years.

A spokeswoman for the NZDMO told interest.co.nz, that as far as staff at the NZDMO were aware, it's the biggest single deal the government's debt manager has ever done, topping previous $NZ1 billion bond tenders.

The bond issue was the first one of an inflation-indexed New Zealand Government bond with a maturity date of September 20, 2025. The NZDMO said it sold NZ$2.5 billion of the 2% coupon bond at a real yield of 1.96%. It said the issue was heavily oversubscribed with more than NZ$4 billion worth of bids received.

"We are very pleased to have completed this transaction. It represents a successful return to the New Zealand dollar inflation market. We expect that the inflation-indexed bond market will continue to grow and that it will become a core part of the New Zealand Government’s funding programmes," NZDMO Treasurer Brendon Doyle said.

The bonds are New Zealand dollar bonds whose value is adjusted in line with movements in the Consumer Price Index. Coupon interest is payable quarterly in arrears on the capital value of the bonds. On the maturity date, the final payment of coupon interest and the final payment on maturity are made.

It's the first issue of inflation-indexed bonds by the New Zealand Government since 1999. The deal was managed by a syndicate of banks including ANZ, Deutsche Bank AG New Zealand Branch, and UBS AG, Australia Branch. HSBC and the Royal Bank of Scotland, Australia Branch, were co-managers. The syndicate was reappointed this year after previously being engaged from September 10, 2010 until June 30, 2011 when no inflation indexed bonds were actually issued.

Doyle said the NZDMO planned to continue primary issuance of 2025 inflation-indexed bonds with a tender programme starting next February. See more from the NZDMO on the inflation indexed bonds here.

Finance Minister Bill English issued a statement saying strong demand for the inflation bonds was a vote of confidence in New Zealand at a time when many other countries were dealing with deep-seated economic and financial problems.

“This will help us to continue borrowing at competitive market interest rates, so that we minimise the Government’s borrowing costs at a time when its finances are tight," said English.

“For that to happen, it is essential that the Government maintains its responsible management of the economy and its own finances.”

(Update adds comments from Bill English).

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9 Comments

borrowing  NZ$2.5 billion ,  too big to fail !   
PS    we dont have to pay this back do weeeee.....

Settlement date?
No mention of the first coupon concession to the lucky punters?
 
The first Coupon Interest payment on Bonds will be calculated on the basis that there is deemed to be a full quarter between the Issue Date of those Bonds and the first Coupon Interest Payment Date following the Issue Date of those Bonds; and
Coupon Interest will be paid on the first Coupon Interest Payment Date following the Issue Date of those Bonds.
 
Never mind that there is not a full quarter.

Stephen - you are mistaken here. The purchase price includes the accrued interest that notionally existed prior to settlement date. So you effectively buy a small amount of  accrued interest and get it back as part of the first coupon. This enables the first coupon to be a full coupon, making the settlement calculation conventional for subsequent secondary market trading. It is standard market practice and there is no concession.

I certainly stand corrected - DMO confirms the coupon clock has in effect been running since 20 Sep and will be calculated as such as though a secondary market trade will take place on settlement date.

That the borrowing replaces debt that cost more to finance is a positive...might as well take advantage of the stonking financial farce...like taking candy from a baby...or taxes from the peasants.
The real issue is whether the Beehive inhabitants are making any effort to reduce govt reliance on debt..and...making any effort to curtail the economies dependence on credit....me thinks the answer to both questions is a loud "NO"

Wolly,
Have re read the article, and can't find where it says that this debt is replacing existing debt. So I iimagine its covering 2-3 months of new deficit. 
By the by, countries like the UK, the US and many others, are printing their deficits, so have zero interest costs on most of their new debt. That also keeps their currencies competitive. This debt will yet again keep the NZD up, as foreigners buy NZD to fund it, and so the vicious cycle continues of putting more businesses out of business, and so the deficit gets worse.
Not sure why we don't even consider such actions. Biill English now says he is actually concerned about the Current Account deficit, but still doing nothing meaningful about it. This 2.5 billion could have been a good start.

Stephen L - You need to get out into the world of fixed interest trading.
 
The Government has to redeem the marketable tranche ~NZD 9.982 billion of the 6.50% 15-04-2013 NZD11.270 billion issue.
 
This takes time and cannot always be achieved the next day, Hence the build up of over issuance here at the RBNZ under the column government deposits.   

Stephen,
Thanks for clarifying. Sounds an exciting world indeed. So all good if its replacing other foreign funded debt at lower interest (and I understand they wouldn't sort that overnight). Given a fiscal deficit of ~$10 billion?, it still feels somewhat equivalent to a quarter's worth of new debt. I would prefer they fund future debt by either borrowing off NZers; or if that would suck up too much money supply, then consider printing. Otherwise it does seem to perpetuate this over inflated currency problem we have.

"Bill English now says he is actually concerned about the Current Account deficit"
Well Halleluiah for that! Now what? Just keep doing the the same stuff that caused the problem in the first place:
Government borrowing overseas for consumption - check
Private borrowing to support asset bubbles - check
Private borrowing for consumption - check
General borrowing driving up the NZ$ - check
Sell off prime, income producing private and public businesses to foreigners - check
Open slather for overseas imports to the NZ economy - check.
Savers get taxed for illusionary income - check
Speculators get off tax free - check.
 
There's not one thing being done, that I can see, to confront our most serious issue - our appalling current account deficit.