New Zealand Government Debt Market Outlook - February 2018 - February 2018 ...
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New Zealand Government Debt Market Outlook February 2018
Overview
New Zealand Economic Outlook
New Zealand Government: Fiscal Priorities
New Zealand Government Bonds:
Risk/Reward
NZDMO: Strategy and Announcements
2
Economic Outlook
Growth remains robust
Real GDP (Production measure)
8 3
2.5
6
2
4 1.5
1
2
0.5
0 0
Forecast -0.5
-2
-1
-4 -1.5
2000 2003 2006 2009 2012 2015 2018 2021
Quarterly
Quarterly growth (RHS) Annual average % change
Source: The Treasury, HYEFU 2017
4
Net migration moderating
Net inflow (000s) Annual average % change
80 4
60 3
40 2
20 1
Forecast
0 0
-20 -1
Jun-04 Jun-07 Jun-10 Jun-13 Jun-16 Jun-19 Jun-22
Annual permanent and long-term net migration
Working age population growth (RHS)
Source: The Treasury, HYEFU 2017
5
Housing construction picks up
% of real expenditure GDP
8
7
6
5
Forecast
4
3
2000 2003 2006 2009 2012 2015 2018 2021
Real residential investment
Source: The Treasury, HYEFU 2017
6
Private consumption supported
Annual average % change
8
Forecast
6
4
2
0
-2
2000 2003 2006 2009 2012 2015 2018 2021
Quarterly
Real private consumption
Source: The Treasury, HYEFU 2017
7
Terms of trade elevated
Index (2009/10=1000)
1400
Forecast
1200
1000
800
Jun-04 Jun-07 Jun-10 Jun-13 Jun-16 Jun-19 Jun-22
Quarterly
Terms of trade
Source: The Treasury, HYEFU 2017
8
Labour market tightens
% of labour force % of working-age population - inv
7 61
62
6 63
64
65
5
66
67
4
68
69
3 70
71
2 72
Mar 00 Mar 04 Mar 08 Mar 12 Mar 16
NZ unemployment rate
NZ participation rate (rh)
Source: Bloomberg
9
Gradual rise in inflation
% Annual % change
9 6
Forecast
7 4.5
5 3
3 1.5
1 0
2000 2003 2006 2009 2012 2015 2018 2021
Quarterly
90-day interest rate CPI inflation (RHS)
Source: The Treasury, HYEFU 2017
10Fiscal Priorities
Budget Responsibility Rules
Current Government is committed to prudent fiscal strategy with 5 Budget Responsibility
Rules:
• Deliver a sustainable operating surplus across an economic cycle.
• Reduce the level of net core Crown debt to 20 per cent of GDP within five years of taking office.
• Prioritise investments to address the long-term financial and sustainability challenges facing
New Zealand.
• Take a prudent approach to ensure expenditure is phased, controlled and directed to maximise its
benefits. The Government will maintain its expenditure to within the recent historical range of spending
to GDP ratio.
• Ensure a progressive taxation system that is fair, balanced and promotes the long-term sustainability
and productivity of the economy.
Source: Budget Policy Statement, December 2017
12Operating surpluses sustained
NZ$b
15
Forecast
10
5
0
-5
-10
-15
-20
-25
2008 2010 2012 2014 2016 2018 2020 2022
Year ending 30 June
OBEGAL (Operating Balance Excluding Gains and Losses)
Source: The Treasury, HYEFU 2017
13Capital spending impacts residual cash
NZ$b
15
10
5
0
-5
-10
-15
2017 2018 2019 2020 2021 2022
Year ending 30 June
Operating Capital Residual cash
Source: The Treasury, HYEFU 2017
14Net core Crown debt contained
NZ$b % of GDP
80 35
Forecast
70 30
60
25
50
20
40
15
30
10
20
10 5
0 0
2008 2010 2012 2014 2016 2018 2020 2022
Year ending 30 June
Net core Crown debt % of nominal GDP (RHS)
Source: The Treasury, HYEFU 2017
15Credibility in achieving forecasts
Forecast Net Debt as % of GDP
% of GDP
28
27
26
25
24
23
22
21
20
19 May-14 Dec-14 May-15 Dec-15 May-16 Dec-16 May-17
18
2013 2014 2015 2016 2017 2018 2019 2020 2021
Source: The Treasury
16NZGBs maintained above 20% of GDP
NZ$b
25 30%
25%
20
20%
15
15%
10
10%
5
5%
0 0%
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Bond Programme NZGBs as % GDP
Source: The Treasury’s NZDMO
17New Zealand Government Bonds: Risk/Reward
Solid Credit Rating
Moody’s “New Zealand’s credit profile reflects its very high
economic resilience, very strong institutions and
Aaa/Aaa (stable) political effectiveness and a strong fiscal position
compared to peers.” July 2017
Standard & Poor’s “New Zealand has monetary and fiscal flexibility, a
resilient economy, and institutions conducive to swift
AA+/AA (stable) and decisive policy actions. The high level of external
liabilities is New Zealand’s main credit weakness”
Jan 2018
Fitch “New Zealand’s ‘AA’ rating reflects the country’s strong
macroeconomic policy framework and prudent fiscal
AA+/AA (stable) management, reinforced by governance standards and
a business environment that are rated among the best
globally by the World Bank.” Mar 2017
Source: Moody’s Investor Service, Standard & Poor’s, Fitch Ratings
19Strong institutions
Worldwide Governance Indicators – World Bank (percentile rank)
Control of Corruption
100
90
Voice and Accountability Government Effectiveness
80
70
Political Stability and
Rule of Law Absence of
Violence/Terrorism
Regulatory Quality
Sovereigns rated AA/Aa2 and higher (average) New Zealand
Source: World Bank Worldwide Governance Indicators 2016
20Strong balance sheet
Taiwan
New Zealand
Switzerland
Denmark
Norway
Sweden
Czech Republic
South Korea
Hong Kong
Poland
Australia
Iceland
Netherlands
Israel
Finland
Germany
Ireland
Hungary
United States
Austria
United Kingdom
France
Spain
Canada
Belgium
Portugal
Italy
Greece
Japan
0 50 100 150 200 250
Public Debt as % of GDP*
*Public debt compares the cumulative total of all government borrowings
less repayments that are denominated in a country's home currency.
21
Source: CIA 2017 Estimate, BloombergImprovement in NIIP
% of GDP Net international investment position
-50
-55
-60
-65
-70
Forecast
-75
-80
-85
2007 2010 2013 2016 2019 2022
Australia New Zealand
Source: The Treasury
22Attractive real yields
%
4.0
3.0
2.0
1.0
0.0
-1.0
-2.0
UK Germ JP US AU NZ
10Y Real Yields (IIB Yield) 10Y Inflation Breakevens
Source: Bloomberg
23NZDMO: Strategy and Announcements
Funding strategy priorities
• NZDMO’s debt funding strategy aims to minimise the Crown’s borrowing
costs over the long-term, with due consideration to risk. This requires:
balancing a debt portfolio structure appropriate for the Crown’s balance
sheet requirements with investor demand
building and maintaining depth, diversity and confidence of the investor
base to ensure ongoing market access to funding, and
ensuring NZDMO’s actions support secondary market liquidity and well
functioning NZ capital markets to minimise borrowing costs through time.
• In implementing the debt funding strategy, NZDMO aims to execute funding
programmes in a transparent, even-handed and consistent manner.
Source: The Treasury’s NZDMO
25Steady issuance profile
NZ$b NZ$b
20 Forecast 80
18 70
16
60
14
12 50
10 40
8 30
6
20
4
2 10
0 0
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Annual bond issuance - year ended June
Total bonds oustanding (RHS)
Source: The Treasury’s NZDMO
26Evolution of portfolio structure (I)
From Early-2013 To Current
NZ$b NZ$b
12.0 12.0
10.0 10.0
8.0 8.0
6.0 6.0
4.0 4.0
2.0 2.0
0.0 0.0
Apr Apr Feb Dec Mar May Apr Apr Sep Apr Apr Sep Apr Sep Apr Sep Mar Apr May Apr Apr Sep Apr Apr Sep Apr Sep Apr Sep
13 15 16 17 19 21 23 25 25 27 29 30 33 35 37 40 19 20 21 23 25 25 27 29 30 33 35 37 40
Outstanding - Nominal Outstanding - IIB Available capacity
Outstanding - Nominal Outstanding - IIB Available capacity
No
m
Source: The Treasury’s NZDMO
27Evolution of portfolio structure (II)
From End-2012 To End-2017
Inflation-Indexed Bonds Inflation-Indexed Bonds
Treasury Bills 2%
16% 21%
Treasury Bills 5%
82% 74%
Nominal Bonds Nominal Bonds
Source: The Treasury’s NZDMO
28Evolution of portfolio structure (III)
Years
7.5
7.0
6.5
6.0
5.5 NZGB Portfolio - Average Years to Maturity
5.0
Dec 12 Dec 13 Dec 14 Dec 15 Dec 16 Dec 17
Source: The Treasury’s NZDMO
29Supporting liquidity
• Stable levels of recent, current and forecast funding programmes
• Levels of outstanding bonds at 3-4 times pre GFC levels
• Government commitment to minimum level of NZGBs on issue
• Quarterly tender schedule announcements: fixed amounts and specific
maturities
• Capacity to tender two nominal maturities per month
• New bonds launched via syndication for immediate volume
• Use of benchmark lines
• Focus on domestic market issuance and core products
• Management of cash flows around upcoming bond maturities
• Broadly match Australian Commonwealth Government bond maturities
Source: The Treasury’s NZDMO
30Maintaining diverse investor base
NZ$m %
80000 90
70000 80
60000 70
60
50000
50
40000
40
30000
30
20000 20
10000 10
0 0
Apr 94 Apr 97 Apr 00 Apr 03 Apr 06 Apr 09 Apr 12 Apr 15
Resident holdings of NZGBs (NZ$m)
Non-resident holdings of NZGBs (NZ$m)
Non-resident holdings of NZGBs (%) (RH)
Source: Bloomberg, RBNZ
31Recent announcements
Forecast Domestic Bond Programme – HYEFU, December 2017
Year ending 30 June (face value) 2018 2019 2020 2021 2022 Total
Gross NZGB issuance ($ billion) 7.0 7.0 7.0 7.0 7.0 35.0
NZGB maturities and repurchases ($ billion) 9.1 7.9 7.3 11.1 0.0 35.3
Net NZGB issuance ($ billion) -2.1 -0.9 -0.3 -4.1 7.0 -0.3
NZGBs on issue ($ billion) 72.3 71.4 71.2 67.1 74.1 n/a
NZGBs on issue (percent of GDP) 25.2% 23.7% 22.5% 20.2% 21.4% n/a
• Reiterated intention to syndicate NZGB 20 April 2029 before 30 June 2018
• Up to NZ$5b of NZGB 15 March 2019 to be repurchased prior to 30 June 2018
• Maintain levels of NZGBs on issue at not less than 20% of GDP over time
Source: The Treasury’s NZDMO
32Coming up
Events
• Syndication of NZGB 20 April 2029 before 30 June 2018
• Commence repurchases of NZGB 15 March 2019
• Economic and Fiscal Updates: Budget (May), Half-Year (Dec)
• Quarterly bond tender schedule release: End-Mar, -Jun, -Sep, -Dec
• Biannual release of New Zealand Government Securities Overview
Communications
• Subscribe for email updates from the NZDMO: info@nzdmo.govt.nz
• For further information see: https://www.nzdmo.govt.nz or
• https://www.treasury.govt.nz
• Contacts: Sarah Vrede, Head of New Zealand Debt Management Office
Kim Martin, Principal Strategist
33Disclaimer
• This presentation has been prepared by The Treasury’s New Zealand Debt Management Office (“NZDMO”) on behalf of the
New Zealand Government and is for general information purposes only. By listening to the presentation, or reading the
presentation materials, you acknowledge and agree to the contents of this disclaimer.
• To the maximum extent permitted by law, neither NZDMO nor the New Zealand Government makes any representation,
recommendation or warranty, express or implied as to the accuracy, completeness or currency of any of the information in this
presentation and accept no responsibility or liability therefore. Data are indicative and approximate only, and all information is
subject to change. This presentation is intended as a snapshot view of New Zealand only, and NZDMO and the New Zealand
Government have no obligation, and do not undertake or accept any responsibility or obligation, to update, expand or correct
anything in this presentation or inform you of any matter arising or coming to their notice, after the date of this presentation,
which may affect any matter referred to in this presentation.
• This presentation contains forward-looking statements including information regarding NZDMO’s future bond issuances and
the New Zealand Government’s forecast fiscal and economic performance based on current information, estimates and
forecasts. Those statements are subject to risks, uncertainties, and assumptions which are hard to predict or anticipate, and
therefore actual outcomes and performance may differ materially from the statements. Any opinions expressed in this
presentation reflect the judgement of NZDMO as the date hereof, and do not bind NZDMO nor the New Zealand Government.
• This presentation is not a product disclosure statement, disclosure document or other offer document under New Zealand law
or any other law. This presentation is not, and does not constitute financial advice. All reasonable care has been taken in
relation to the preparation and collation of this presentation. Except for statutory liability which may not be excluded, no
person, including NZDMO or any person mentioned in this presentation accepts responsibility for any loss or damage
howsoever occurring resulting from the use or reliance on this presentation by any person. Past performance is not indicative
of future performance and no guarantee or future rights are implied or given.
• Nothing in this presentation is an offer to sell, or solicitation of an offer to purchase, any securities. This presentation must not
be relied upon by any person for making any investment decision and will not form part of any investment contract. The
information provided in this presentation is not investment advice and does not take into account the investment objectives,
financial situation or particular needs (including financial and taxation issues) of any particular investor. Any person considering
in investing in New Zealand Government securities must refer to any relevant offer documents and disclosures provided
expressly in connection with those securities and should take their own independent financial and legal advice on their
proposed investment. New Zealand Government securities have not been and will not be registered under the United States
Securities Act of 1933 (U.S Securities Act) or the securities laws of any state or other jurisdiction of the United States. New
Zealand Government securities may not be offered or sold, directly or indirectly, in the United States or to, or for the account
or benefit of, any person in the United States except in transactions exempt from, or not subject to, the registration
requirements of the U.S. Securities Act and any other applicable U.S. state securities laws.
• This presentation may not be copied, distributed, disclosed or used without NZDMO’s express written consent.You can also read
