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NZ to sell $900M of bonds tomorrow, biggest sale in 7 months

Thursday 26th April 2012

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New Zealand’s Debt Management Office will offer to sell $900 million of government bonds tomorrow in the biggest sale since September, betting on strong demand for the relatively attractive yields to catch up on its target for this fiscal year.

The DMO will offer $300 million each of Dec. 15, 2017, bonds with a coupon of 6 percent, March 15, 2019, bonds at 5 percent and April 15, 2023, bonds paying 5.5 percent, according to a statement on its website.

The DMO has a target of $13.5 billion of debt sales this fiscal year but has slipped behind the run rate needed to meet that total by June 30. Friday’s sale will be the largest since the Sept. 29 tender and is larger than the recent totals raised of between $200 million-to-$300 million per tender.  After tomorrow, the DMO has nine more sales scheduled before June 30.

Christian Hawkesby, head of fixed income at Harbour Asset Management in Wellington, said the DMO may be betting on strong demand given the premium offered over Australian government bonds.

“For most of 2012, yields on Australian and New Zealand 10-year government bonds had been at broadly similar levels,” Hawkesby said. “But through April, yields on NZ 10-year bonds have widened to 30-40 basis points above Australia.  This has helped put them back on the radar of global investors.”

The Reserve Bank of New Zealand today kept the official cash rate unchanged at a record low 2.5 percent, citing tame inflation and the impact of a strong kiwi dollar in quashing tradable inflation.

By contrast, the Reserve Bank of Australia is expected to cut its cash rate of 4.25 percent as soon as next week after government figures across the Tasman showed inflation was just 0.1 percent in the first quarter, lower than expected.

A move by the RBA would enhance the relative appeal of New Zealand interest rates and potentially boost the New Zealand dollar.

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