Treasury takes a knife to bond programme as finances improve

Improving government finances mean the Treasury will issue $2 billion less in government bonds in the current financial year, will buy back up to $3 billion of bonds on issue, and will delay the launch of a new long-dated bond until the next financial year, at the earliest.

A statement from the New Zealand Debt Management Office accompanying today's Half Year Fiscal and Economic Update effectively concedes that the government over-borrowed for its expected financing needs last year, as its cash position improved faster than expected.

"The changes ... are in response to a $5 billion reduction in the Crown's forecast funding requirements, as a result of a stronger cash position from the 2012/13 year and further improvements forecast in the current financial year," the NZDMO statement says.

The domestic bond programme in the current financial year will now reduce from a projected $10 billion to $8 billion, while up to $3 billion of April 2015 nominal bonds will be repurchased in the second half of this financial year, subject to market conditions.

"Both gross and net bond issuance are expected to be a cumulative $4 billion lower than the Budget 2013 forecast," the DMO said. "The April 2027 nominal bond, previously being considered for launch in 2013/13, will now be delayed until 2014/15 at the earliest."

This year's bond tender programme will continue to include $5 billion of inflation-indexed bonds, subject to market conditions, as previously announced.

Tables accompanying the announcement show that between the 2013/14 and 2017/18 financial years, the DMO expects to borrow a total of $34 billion in bonds and repay bonds worth $23.9 billion, for a net bond issuance of just on $10 billion.

The announcements came as the Treasury forecasts larger fiscal surpluses over the same period than were envisaged in the 2013 Budget, published in May, and a projected fall in net core Crown debt from a peak of 26.5 percent of gross domestic product in 2014/15 to an estimated 16.9 percent in 2019/20.

(BusinessDesk)