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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20 Comments
This is actually the biggest problem in NZ, a giant white elephant, and no comments. Compare to 200+ comments on Real Estate news.
Which shows, it's a problem like squaring the circle.
Whichever solution one advocates, always somebody cries out and is not happy.
Meaning we are just rolling along until some horrendous happenings are forcing us.
Ugly!
The ones, who really know, realize that time for talk is over. The ones who don’t, well, they will scream when it’s too late. The ones who are in position to do something are caught up in the system. The ones who think they have covered their backsides have no idea about history. The ones who have profiteered feel fear creeping up. The ones who have governed will try to find dry land. The ones who will be hit hardest will not know what hit them. The ones now in power will be speechless when chaos strikes. The powerless majority won’t give a damn about democracy. The then powerful mob will swing the pendulum. Today’s rationale will be the fallacy of the past. The future will look like some parts of history.
Yep, ugly. Very ugly.
Gertraud T.
I think you are expecting us as a nation to face reality something that has long been hidden from the masses.
I read this this morning about the Eu and I think out export markets are really in trouble, I think we just keep sailing till we fall off the end. Telling the truth to the masess is something no one has the courage to do, yet. My friends with debt are being saved by low interest rates but the debt is still there. How long till rising interest rates wipe them out taking the banking sector along for the ride.
Drjonathanwilson
If you were wondering why the ECB is raising its base rate then here you have the answer - a large part of the explanation lies in their market operations when buying PIIGS debt. (Emma do yourself a favour and find out who the buyers of debt are before you begin to trumpet “low” yields)
Consider this: The ECB knowingly buys worthless Portuguese, Irish, Greek and now Spanish debt (sovereign or bank bonds - it makes no real difference - it’s all trash) and in exchange provides drawing rights for these countries in Euros. This is QE by any other name.
Therefore to limit the inflationary effects of this QE, the Germans insist on interest rate rises.
As the effects of this interest rate rise feed into the PIIGS economies their ability to pay back the interest and capital falls as tax receipts fall due to falling economic activity.
Now I guess that everyone on this blog (except Chelly) can see and has seen for at least the last 2 years what an utterly futile process this is. No wonder then that AEP has taken himself off to the Mayan Highlands and Moraymint has pulled up the drawbridge – I suspect that they have no pleasure in witnessing the unfolding human misery. This is going to be a spectacular summer – to be remembered as the Molotov Summer.
Whilst it is plain for all to see that EMU is all but finished as we know it, my real concern now is with the UK and USA. Yes their sovereign debts have much longer maturity dates but that is only a small comfort.
The immediate threat comes from short term yield increases and the effect of these increases on disposable household income given the high proportion of mortgage repayments to after tax income.
For every 1% increase in the base rate, disposable income in the UK and USA could shrink by 10% to 15% for those without fixed rate mortgages. If one combines the effects of a 1% base rate increase on non-secured debt for the average household then the reduction in after tax and interest income is between 20% and 25%.
Consider the collapse in private demand in the UK and US economies of this magnitude and a Great Depression II is a certainty.
Jonathan
http://www.telegraph.co.uk/finance/economics/gilts/8436428/Spains-tough…
AndrewJ
I am aware, of all the problems in other countries.
We would need a politician who has the personality and courage to clearly explain the problem. The so called "masses" are not necessarily too dumb, to understand.
I remember still vividly even after more than 50 years, after the second war, when my homecountry was on it's knees, bombed out, cold, hungry and occupied by foreign forces, a young politician in his Christmas speech on radio (no TV then) saying with noticeable tears in his voice: "I can not promise you coal for heating, no glass for your windows, no food for your Christmas, but when we roll up our sleeves and we work very hard all together, I promise you we will make it!" He won the election .........and we made it.
Whining does not help.
Financial Armageddon on the horizon is a similar situation, where desperation makes us feel helpless, only pulling on the same string with hard work can and will eventually make us free from the shackles binding us at the moment. It takes just one person with Charisma.
Unfortunately I cannot see him (or her) at the moment.
Take New Zealands GDP and deduct the profits that go overseas, then deduct the government debt, then deduct the amount held by New Zealands top ten percent. With what you have left divide it by the 90 percent of us that are left and we will be lucky if it works out to a few bob each.
The prospect of finding someone with what it takes to explain our dire economic situation is not good. People usually only believe what suits them , facts don't matter.
This sums the situation up nicely
Past generations facing hardship did so without resorting to drugs ( alcohol excepted ) but that is not the case today. It will get very ugly. Start a garden, plant more than you need too, because there will be plenty who will help themselves.
"empower the RBNZ to type some E-Dollars up"....insane economics Iain...you have allowed dogma and humbug to rule your thinking...total refusal to think...
Tell us all who would decide how many is "some" ! Don't spew out the claptrap about upstanding citizens blather....
When you have done refusing to answer that...explain why the problem destroys your credibility 100%.
Are you incapable of understanding this Iain...it does not matter about Raf or whomever else you drag out to claim all will be solved if only govts issue their own money..their own credit...will you get it into your head that it is a question of who is in charge of the mechanism that decides on how much credit is provided....you rightly rubbish the system we have because yes it is run by a bunch of thieving bastards but they are supported by lying untrustworth shites calling themselves politicians and claiming to be working for the good of the nation.....why do you have this belief that these same bloody politicians would do a prudent job of managing the credit...why can't you see the problem....?
Well done Iain...you have finally torn apart the myth that has imprisoned you all these years....." If the people then choose to continue like brainless animals".....that's all it took Iain...!
Take it as a very proven rule of thumb...the people you talk of will not change their ways...enough will vote for the shites who promise them the most....
" we remove the overtly corrupt politicians"...How?....oh that's easy, 'we' will elect 'upstanding honest diligent and citizens to do the job....how do 'we' make sure they are not covertly corrupt Iain?....oh that easy...'we' will appoint corrupt free police to make sure...blah blah blah...Who are the 'we' Iain?
Get the message Iain.....you cannot remove the human from any system and the human is bound to be either; corrupt, greedy, envious, devious, imprudent, misguided and sometimes all of these at the same time. Welcome to politics, power, influence and wealth and the weakness of Human Beings.
Anyone who is under any pretence how much strife this country is in should read Fran O'Sullivan's great piece in the Herald today:
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10718035
Fran is the woMAN
I'm seriously looking at Aus opportunities - I think this country is stuffed, and sadly we don't have the leadership with the balls to turn it around. I voted for National and thought they had it - sadly they don't, we've been let down
Radical remedial action is required - either big cuts to spending, or increases in taxes, or a bit of both. All effective options will have some short to mid term economic pain
But all will be fine, Westpac think there will be 6% growth this year :)
Yep...Fran is giving JK and BE the 'boot up the bum treatment' and they bloodywell deserve it.
The dithering that went on for two now wasted years.....all was spin and bullshit...all of it a failure to lead.
And still the National snouts in the trough believe all they have to do is dither some more...they really do believe the utter crap coming from Bernanke...yes they are tuned into CNBC where they are told "recovery is underway".....harrrrrhahahahahaha
Its simple, keep a lid on it until December, then like a magician pull the nightmare(s) out of the hat....at that point declare a "national emergency" and slash........um.......uh...........and sell.............uh..........um......oh....Never mind slash taxes for the rich to 25% and raise GST to 25% to cope....
Alternatively, bring in a land, tobin and CGT tax.....for far too long some have got away with paying little tax, that has to be cured....at that point of course our ponzi scheme property market implodes....
So in 2012 the SOE's will go to foreign investors for a song and see us screwed over in excessive charges think Genesis making 25million....all to keep the right wing biased, faudalent and broken ratings agencies happy.....they are being intelectually bribed if not financially....
Or you could vote Labour who will just borrow more throw it away at the poor to "help them" and see us go t*ts up that way....
Its time for some hardship and a bit of sacrifice and it has to be shared equally....show me a party that has the balls to do it fairly and openly and I'll look at voting for them.
regards
You're on the plonk.. right steven!....I too expect all hell to break out post the election with Bollard doing a mighty reverse double flip with a twist and a splatt. Rates will rise and the indebted suffer a demise.
But upping taxes will not float the rotten boat...it looks like it would raise revenue and save English's bacon but it don't work like that...as you put em up, people evade and spend less and the consequence is Bill discovers the tax take fails to go up while Mr&Mrs Peasant and sprogs pull the belts in another notch or three...more vege gardens sprout with Sprouts.
Hey presto revenue keeps falling. Bugger.
It all keeps going back to the basic point....the banks are sucking the wealth from the country because they loaned out $350 billion to silly Kiwi...until the debt total is reduced and by a bloody big number, expect the recession to go on and on with only the BS and spin to keep it company. Jk and Bolly are eating away at the Kiwi$ 30% plus every ten years stealing from savers as fast as they can. That is the only policy in train. The rest is humbug.
There are feck all assets left to flog unless you count the Chatham islands and the NZ Antarctic claim....and maybe the Beehive and the Governer General's palace.
I dont agree with your view on Bollard Wolly.....he might backout to 3% maybe 3.5% maybe, explode? no.......however the OCR is different to private interest rates, so its possible the OCR will stay low or even go lower but our mortgage rates increase as foreign investors insist on higher returns for the risk.
"as you put em up, people evade and spend less" yes and no, so you have to tax things ppl cant avoid....hence land taxes and CGT I think have sensibly to come about, there is no choice....
"until the debt total is reduced and by a bloody big number, expect the recession to go on and on" Indeed I do....one, two decades.
"Jk and Bolly" I'd seperate Bolly out.....blame the Govn of the day, certianly Labour deserves a good bollocking for this mess that we now cannot get out of, Bolly just works within his limitations, save your wrath for HC and JK....they deserve every bit... He's different to Bernanke IMHO....
3% inflation is simply normal....the correction is a deflationary period.....
regards
What good news...the governor general has managed to blow through only 3.5million in one year!...coming on top of some fathead wasting 45 million on tarting up an old house...
Let's see now, once every three years this remnant from history plods his way to Parliament and pretends to be Queenie...the rest of the time he is no more than a party piece....
"freeloader"!
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