By Gareth Vaughan
The New Zealand Debt Management Office (NZDMO) could issue the equivalent of about NZ$4,500 worth of debt for every New Zealander this financial year, the ANZ says, if the government's debt manager again increases the size of its annual programme.
In late March the NZDMO lifted the size of its June year programme by NZ$1.5 billion to NZ$15 billion to meet strong demand for government bonds and said it would provide a further update on its bond programme with the Government’s May 19 Budget. This comes after the NZDMO issued NZ$2.8 billion worth of government debt in March, its biggest monthly total ever.
In ANZ's latest edition of its Credit Focus report, the bank's senior interest rate strategist, David Croy, says if the NZDMO continues to sell about NZ$500 million of bonds per week, as it has since the February 22 Christchurch earthquake, another increase in the programme is likely within two to three weeks.
"At that point the Budget will be about four weeks away, and unless the NZDMO wants to issue yet another increase prior to the Budget, we'd expect the programme to be increased to around NZ$17 billion in a few weeks, with a final revision, which could run close to NZ$20 billion, at the budget," Croy says.
Based on New Zealand's population of 4.4 million, NZ$20 billion dollars would be about NZ$4,500 per man, woman and child.
Earthquake liability 'almost covered'
If the government's earthquake liability, excluding that covered by the Earthquake Commission, reinsurance and private insurance, is assumed to be about NZ$8 billion, then the "lion's share" of this will have been funded. The NZDMO may then revert back to "relatively sedate" issuance targets of about NZ$10 billion annually, Croy suggests.
Although the NZDMO's bond tenders are receiving strong investor demand, bid cover and price tension has suffered, Croy adds. Overall bid cover has fallen below two times for the first time in at least a year and the tail width, or the total spread of the successful bidding range which would be 4 basis points if the successful range was 5.70% to 5.73%, has widened to more than 4 basis points.
The government's long bonds, with maturities in 2019 and 2021, have proven most popular with NZ$2.65 billion of March's NZ$28 billion of issuance coming in long bonds.
"We would expect this to continue," Croy says. "As we have long argued, when you've got some debt to raise, you may as well term it out, especially with rates as low as they are at the moment, and with other sovereign debt markets as jittery as they are."
During March the NZDMO raised NZ$950 million in a single bond tender, its equal biggest amount ever, and then NZ$750 million in another tender the following week.
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