BUDGET 2012: DMO flags inflation-indexed bond issues in coming two years

BUSINESSDESK: The New Zealand Debt Management Office will sell as much as $4 billion of inflation-indexed bonds in the next two financial years.

The government's debt issuer has been looking at resuming inflation-linked bond sales for the past couple of years, and will auction up to $2 billion in each of its 2013 and 2014 bond programmes.

The DMO increased its 2012 programme by $1.5 billion to $15 billion as it seeks to raise $45.5 billion of new debt over the next four years.

That is $3 billion lower than was flagged in the pre-election fiscal and economic update in November. Over the next four years, the DMO expects to raise $14.9 billion in net borrowing.

"The increase in the 2011-12 bond programme will provide operational flexibility to issue additional bonds should there be an increase in demand prior to the end of the fiscal year," the DMO said.

"Any such additional issuance, together with the increase in the 2012/13 bond programme, will be used to reduce Treasury bill outstandings from $9 billion to $5 billion."

In March, the DMO fell behind the run-rate required to meet its $13 billion annual target.

The DMO will see a $500 million reduction in net borrowing in the 2013 March year and $3 billion in 2015 as maturities outpace the volume of new sales.

The government expects net debt to peak at 28.7 percent of gross domestic product in 2013-14, and Finance Minister Bill English said the spending decisions it has made have caused a "lasting and permanent impact" on debt.

The low interest rate environment hasn't encouraged the government to ramp up its borrowing programme.

"The fall in bond rates has been unprecedented," Mr English said. "We're not considering taking on more debt just because it's cheaper."