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Treasury cuts its risk-free Kiwi Bond interest rate to 1.00% for all terms, down from 1.50%

Treasury cuts its risk-free Kiwi Bond interest rate to 1.00% for all terms, down from 1.50%

The Treasury website has been updated today (Friday) to show that it is now offering only 1.0% for its retail Kiwi Bond.

This rate applies to each of its six month, one year, two year and four year fixed terms.

This follows the RBNZ -50 basis points rate cut on Wednesday, August 8, 2019.

The previous Kiwi Bond interest rate was 1.5%.

This rate is important because it is the risk-free benchmark for retail savers.

There is $168 mln invested in Kiwi Bonds. That is down -7% from the $181 mln invested a year ago.

The minimum amount that can be invested is $1,000 with a maximum of $500,000 in any one issue. Kiwi Bonds are available only to New Zealand residents.

Our own separate analysis shows that banks have only cut term deposit rate offers by an average of -21 bps so far. Treasury is being tougher on their clients than the banks have been on their's.

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10 Comments

Out of interest.. how much money is invested in these Bonds? Are they a significant amount of money, or an also ran?

The answer is in the article ...

Whoops. I need another coffee.

So they account for 3/5ths of not much. Rough figure for comparison, 1 days worth of new mortgage lending, or about 10 lotto draws worth of prize money :)

Which is not a surprise, they pay so little why would you bother. Now 0.67% after tax for a top tax rate investor.. so going backwards unless we are already in a deflationary cycle.

The only way to get a worthwhile return out of these bonds is for them to be correctly classified as junk.

The investment paradigm has changed with the arrival of negative interest rates. and the accompanying currency depreciation.
Along with negative interest rates as an indicator of outstanding debts that can''t be repaid, a slow moving debt default is now under way wiping out savings on the asset side of the equation. The cycle of negative yielding assets is just beginning. It is estimated, that interest rates have to go -25% to reach the level of outstanding debt that can be repaid ( note, this is a purely theoretical financial forecast).
However, since the demand for global debt is undiminished, (15 trillion bond offered are now yielding negative,) it is logical to assume, that the level of negative interest will increase.

In practical investment terms, there are three maijor investment options available:

1. to hedge against currency depreciation, hold physical gold

2. For asset appreciation hold bonds

3. Use private savings to consume and repay private debt with a 10% premium

K.bohm, u so right. And people who thought they could live of their savings now have to make big decisions. Otherwise you back in the job market. After that it will be stagflation. Interesting times are coming. At least we do not have to talk all the time about climate change.

David Chaston, you know that when bond yields go down, the bond value goes up, right? That's a capital gain.

Not in the case of Kiwi Bonds I don't think. I don't know of a secondary market to trade them. Do you?

David, thanks, I actually don't.
In which case I stand corrected.

I'm thinking of moving some of my term deposits into KiwiBonds for the next 6-12 months (as they mature) to avoid the risk of a bail-in (OBR). Does that make sense, or am I doing something stupid?
I assume the only way to lose the money invested in KiwiBonds is when the government defaults. Is that correct?
Oops.. I just realised I replied to an old thread.