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NZ Local Govt Funding Agency attracts big demand in second debt sale

Wednesday 21st March 2012

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The New Zealand Local Government Funding Agency didn’t pull in as many bidders in its second bond auction, though the sale was still overbid by 3.6 times today.

A total of $959 million was bid for the $265 million on offer in the agency’s second auction since it was set up to borrow on behalf of its 18 local authority owners. There were 63 bids, of which 17 were successful, according to the LGFA’s website.

The LGFA sold $85 million of April 15, 2015, bonds at a weighted average yield of 4.01 percent and $180 million of Dec. 15, 2015, bonds at an average yield of 4.91 percent. That was a spread of 78 basis points and 106 basis points over comparable central government debt.

The 2015 spread was unchanged from the previous auction, and the 2017 spread was 8 basis points tighter than in last month’s sale. New Zealand two-year and five-year government bonds rose 2 basis points to 3.26 percent and 3.88 percent respectively today.

“The 2017 result represents an improvement in pricing and we would expect further gradual improvements in future tenders,” Imre Speizer, Westpac Banking market strategist, said in a note.

Demand for the longer-dated debt was “surprising given the natural interest major participants, such as NZ bank treasuries, have for shorter-dated liquid bonds,” he said.

Central government this week released plans to reform local authorities and roll back the expansion of their activities over the past decade, which has seen council debt quadruple to some $8 billion, even as rates rose at an average annual rate of 7 percent.

The councils own 80 percent of LGFA and central government owns the balance. The authority will give councils the ability for the first time to borrow offshore, allowing them to tap markets where interest rates are lower. Auckland City, which is one of the members, can also borrow overseas in its own right because of its size.

LGFA has an AA+ credit rating by Standard & Poor’s and Fitch Ratings - putting it on a par with the nation’s sovereign rating.

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