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NZDMO happy with result of huge bond tender this week

Friday 14th January 2011

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The New Zealand Debt Management Office (NZDMO) increased the amount of New Zealand government bonds it sold in a tender this week in response to strong demand - particularly from one offshore investor.

The office which manages the Government's debt sold a total $950 million worth of bonds at a tender yesterday. It was the largest tender the office has held in decades.

NZDMO Treasurer Philip Combes said demand was so strong for New Zealand government bonds the office would consider revising the size of the bond programme for the year upward when the budget is released.

Currently the Government plans to sell $13.5 billion of bonds in the year to June 30, 2011 and it has already sold $9.25 billion of that total.

At this week's tender $400 million of bonds maturing in December 2017 were sold at a weighted average yield of 5.31%, which was in line with the price existing bonds were trading at in the secondary market. It sold $100 million of bonds maturing in March 2019 at a weighted average yield of 5.52%, which compared to 5.54% in the market.

Investor interest was greatest for the $450 million of May 2021 bonds, which sold at a weighted average yield of 5.67%, which was below the 5.71% in the market, indicating strong demand. This maturity sold to just two investors.

"With tender sizes we flex them to meet demand. We ring around and talk to a number of the banks and our view is we will issue when demand is strong."

Combes said there may have been pent up demand after a two week lay off of tenders over Christmas and New Year. There were indications of strong interest from one international bidder and demand from a local investor for this tender.

"We were happy with the result overall and particularly with the result for the 2021 bonds," Combes said.

The bids for the $950 million of bonds on offer totalled $2.156 billion.

Government bond tenders have been a source of stress in European financial markets when demand has been in doubt but a set of European government bond sales was completed smoothly on Thursday.

"It would be fair to say that the Australian and New Zealand tenders have been going very well for some time. There is a clear differences between how New Zealand and Australia have been regarded in the market compared to peripheral European countries.

"Quite rightly the market is differentiating between sovereigns," Combes said.



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