New long term bonds a taste of things to come

The 12-year bond being launched on Thursday’s bond tender is a new departure for New Zealand governments – and New Zealand investors.

More along these lines is indicated for release in Finance Minister Bill English’s May 28 Budget.

As NBR reported two weeks, ago, the government is looking at “more sophisticated ways” of raising funds for infrastructure projects, both by central and local government.

Mr English described it as a longer-term project because officials concerned with this area are currently so busy on raising more conventional government debt.

But the job is getting harder.

The visiting chairman of Magellan Financial Group Hamish Douglass told a forum of investment advisers in Wellington this week that interest rates are going to rise regardless of what central banks or governments do.

Governments are still raising money by borrowing and will be competing with each other as well in a recovering global equity market.

“When markets start to recover people are not going to be happy on an effective interest rate of half a percent, Or even 2-3%,” he said.

“Irrespective of inflation, I think interest rates will be materially higher then they are at the moment … anyone locking themselves into long term fixed interest right now is absolutely crazy.”

That move from safe, low paying debt instruments into higher yielding investments will mean governments like New Zealand will have to offer a higher return – and one way of doing that will be with the sort of instruments Mr English has been talking about.

Such longer-term instruments will also be used for local government infrastructure projects as well as central government works.

In announcing the tender Mr English said the government is also looking at a longer dated bond, with maturity longer than 15 years.

“Other countries have been using such longer dated instruments for years.”

Got a question about this story? Leave it in Comments & Questions below.

This article is tagged with the following keywords. Find out more about MyNBR Tags

Comments & Questions

Commenter icon key: Subscriber Verified

Post New comment or question

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.

NZ Market Snapshot


Sym Price Change
USD 0.6952 0.0000 0.00%
AUD 0.8901 0.0000 0.00%
EUR 0.5907 0.0000 0.00%
GBP 0.5276 0.0000 0.00%
HKD 5.4294 0.0000 0.00%
JPY 78.9230 0.0000 0.00%


Commodity Price Change Time
Gold Index 1278.6 -9.430 2017-10-20T00:
Oil Brent 57.8 0.550 2017-10-20T00:
Oil Nymex 51.9 0.580 2017-10-20T00:
Silver Index 17.0 -0.177 2017-10-20T00:


Symbol Open High Last %
NZX 50 8124.1 8142.3 8124.1 0.07%
NASDAQ 6633.4 6640.0 6605.1 0.36%
DAX 13057.8 13063.6 12990.1 0.01%
DJI 23205.2 23328.8 23163.0 0.71%
FTSE 7523.0 7560.0 7523.0 0.00%
HKSE 28360.0 28519.8 28159.1 1.17%
NI225 21391.0 21489.3 21448.5 0.04%
ASX 5896.1 5924.9 5896.1 0.17%