Treasury, through its Debt Management Office, has cut -25 bps from all its Kiwi Bond terms.
The new rates are ...
|from July 13, 2020||% pa||% pa|
Kiwi Bonds represent the New Zealand benchmark risk-free and Government guaranteed interest rate.
As at March, 2020 the CPI inflation rates was 2.5%. The June CPI inflation rate is due to be released on Thursday, July 16, 2020 and is expected to come in at 1.6%*. (ANZ today says it expects 1.4%.)
As such we can calculate the premium bank term deposit rates offer for the added risk they carry because they have no taxpayer guarantee, and how that stacks up against inflation.
Even though most bank term deposit options now return less than inflation at least they return much more than the benchmark risk-free return as provided by Kiwi Bonds. The best premium is for the one year term ('best' being a relative term).
In fact, the current bank rates might actually look quite good in hind-sight. That is because officials are making slow but relentless progress towards bringing in a "Government Guarantee" for bank term deposits. That will come with a cost from the Government to banks, and will result in lower term deposit returns. The premium of bank TDs over Kiwi Bonds will tighten right up then. At least, that is the experience in every other country that has a taxpayer guarantee scheme in place.
Where Kiwi Bonds are now is where bank term deposit rates are headed when there is a deposit guarantee - because they become risk free.