second level new zealand government debt · ³ the ratings on new zealand reflect the...

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New Zealand Government Debt

Market Outlook

September 2019


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Click to edit Master title styleOverview

New Zealand Government Bonds: risk-reward

Government debt funding strategy

Economic/Fiscal outlook


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Economic/fiscal outlook


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Click to edit Master title styleSummary of forecasts

Source: StatsNZ, The Treasury, BEFU 2019

June years 2018 2019 2020 2021 2022 2023

Actual Forecast Forecast Forecast Forecast Forecast

Economic

Real production GDP (annual average % change) 3.2 2.4 3.0 2.8 2.4 2.4

Real GDP per capita (annual average % change) 1.1 0.7 1.5 1.5 1.3 1.2

Unemployment rate (June quarter) 4.4 4.1 4.0 4.1 4.2 4.3

CPI inflation (annual % change, June quarter) 1.5 1.8 2.0 2.1 2.0 2.0

Current account balance (% of GDP) -3.4 -3.4 -3.4 -3.4 -3.3 -3.3

Fiscal (% of GDP)

Core Crown tax revenue 27.8 28.2 28.2 28.5 28.6 28.8

Core Crown expenses 27.9 29.1 29.4 29.6 29.0 28.8

Total Crown operating balance before gains and losses 1.9 1.2 0.4 0.6 1.3 1.7

Core Crown residual cash 0.5 -0.9 -1.3 -1.3 -0.2 0.3

Net core Crown debt 19.9 20.1 20.4 20.7 19.9 18.7

Net worth attributable to the Crown 44.9 43.4 42.5 42.1 42.8 43.9

Executive summary table


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Click to edit Master title styleGrowth cycle extended

-2.5

0.0

2.5

5.0

Jun-05 Jun-08 Jun-11 Jun-14 Jun-17 Jun-20 Jun-23

Quarterly

Quarterly % change Annual average % change

%

Forecast

Source: Statistics NZ, The Treasury, BEFU 2019

Real GDP growth


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Click to edit Master title styleNet migration and house prices

Source: Statistics NZ, QV, The Treasury, BEFU 2019

*Prior to June 2015, net migration data is the old series, which was based on intentions

-10

-5

0

5

10

15

20

25

30

35

40

-20

0

20

40

60

80

Mar-00 Mar-03 Mar-06 Mar-09 Mar-12 Mar-15 Mar-18 Mar-21

Quarterly

Net migration* House prices (RHS)

Annual % change

Forecast

Annual sum (000s)


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Click to edit Master title styleEconomy near full capacity

-4

-3

-2

-1

0

1

2

3

4

0

2

4

6

8

Jun-05 Jun-07 Jun-09 Jun-11 Jun-13 Jun-15 Jun-17 Jun-19 Jun-21 Jun-23

Unemployment rate Output gap (RHS)

% of labour force % of potential GDP

Quarterly

Forecast



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Click to edit Master title styleBut inflation remains muted

0

1

2

3

4

5

6

Jun-05 Jun-08 Jun-11 Jun-14 Jun-17 Jun-20 Jun-23

Quarterly

Annual % change

Forecast

CPI inflation (BEFU forecast)



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Click to edit Master title styleTerms of trade strong


800

900

1000

1100

1200

1300

Jun-05 Jun-08 Jun-11 Jun-14 Jun-17 Jun-20 Jun-23Quarterly

Terms of trade

Index (2009/10=1000)

Forecast


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Click to edit Master title styleBusiness confidence - key risk

Source: Statistics NZ, QSBO

-50

-40

-30

-20

-10

0

10

20

30

40

50

-4

-2

0

2

4

6

8

1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 2019

Net %APC

Real GDP QSBO - Own Activity (RHS)


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Click to edit Master title styleOperating surpluses sustained

Source: The Treasury, BEFU 2019

-25

-20

-15

-10

-5

0

5

10

15

2009 2011 2013 2015 2017 2019 2021 2023

Year ending 30 JuneOperating Balance (excluding gains and losses)

Forecast

NZ $billions


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Click to edit Master title stylePlans for capital spending


-15

-10

-5

0

5

10

15

2018 2019 2020 2021 2022 2023

NZ $billions

Year ending 30 June

Operating Capital Residual cash


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Click to edit Master title styleNet debt contained


0

4

8

12

16

20

24

28

32

0

10

20

30

40

50

60

70

80

2009 2011 2013 2015 2017 2019 2021 2023

NZ $billions

Year ending 30 June

Net core Crown debt % of nominal GDP (RHS)

Forecast

% of GDP


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Click to edit Master title styleNew Zealand Government Bonds:

risk-reward


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Click to edit Master title styleS&P recently upgraded outlook

Moody’s

Aaa/Aaa (stable)

“New Zealand's credit profile reflects its very strong institutions and policy effectiveness and a strong fiscal position compared to peers. These credit features mitigate external and domestic vulnerabilities related to high reliance on external financing and elevated household debt.” Feb 2019

Standard & Poor’s

AA+/AA (positive)

“The ratings on New Zealand reflect the country's fiscal and monetary policy flexibility, economic wealth and resilience, and stable public policy settings. These strengths provide the country with flexibility to offset potential risks related to its large external imbalances, high household and agriculture sector debt, dependence on commodity income, and financial system stability.”

Jan 2019

Fitch

AA+/AA (stable)

“New Zealand's ratings are underpinned by very high governance standards, a demonstrated commitment to prudent fiscal management, and a credible policymaking framework that helps manage risks and respond to pressures. The country's high net external debt and elevated household debt are the key weaknesses for the credit profile.” Jan 2019

Source: Moody’s Investor Service, Standard & Poor’s, Fitch Ratings


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Click to edit Master title styleStrong institutions

Source: World Bank Worldwide Governance Indicators 2017

70

80

90

100Control of Corruption

Government Effectiveness

Political Stability andAbsence of

Violence/Terrorism

Regulatory Quality

Rule of Law

Voice and Accountability

Average of sovereigns rated AA (fc) and higher by S&P New Zealand


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Click to edit Master title styleRelative yield

Source: Bloomberg

0.0

1.0

2.0

3.0

4.0

5.0

Aug 2012 Aug 2013 Aug 2014 Aug 2015 Aug 2016 Aug 2017 Aug 2018 Aug 2019

%

10-year yield: NZGB (rated AA (fc) by S&P)

10-year yield: Average of sovereigns rated AA (fc) and higher by S&P


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Click to edit Master title styleNZGB yields

Source: Bloomberg

-0.5

0.0

0.5

1.0

1.5

2.0

0 5 10 15 20 25

%

Term (years)

NZGB - nominal bonds* NZGB - inflation-indexed bonds (real yield)*

* yields (mid rate) as at 27 August, 2019


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Click to edit Master title styleGovernment debt funding strategy


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Click to edit Master title styleChanging funding needs

Source: The Treasury

0

10

20

30

40

50

60

70

80

90

0

2

4

6

8

10

12

14

16

18

20

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01

20

02

20

03

20

04

20

05

20

06

20

07

20

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20

09

20

10

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20

12

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20

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20

17

20

18

20

19

20

20

20

21

20

22

20

23

NZ$bNZ$b

Annual bond issuance - year ended JuneTotal Market Bonds on Issue (RHS)

Forecast


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Click to edit Master title styleForecast borrowing programme



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Click to edit Master title styleCurrent NZGB portfolio


As at 31 March, 2019

0.0

2.0

4.0

6.0

8.0

10.0

12.0

Apr20

May21

Apr23

Apr25

Sep25

Apr27

Apr29

Sep30

Apr33

Sep35

Apr37

Sep40

NZ$b

As at 30 June 2019


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Click to edit Master title styleSyndication of new bonds


IIB Sep

2025NB Apr

2020

NB Apr

2027

NB Apr

2033

NB Apr

2037

IIB Sep

2040

NB Apr

2029

NB May

2031

IIB Sep

2030

IIB Sep

2035

NB Apr

2025

0

5

10

15

20

25

2012 2013 2014 2015 2016 2017 2018 2019

Years to maturity

Calendar years of syndication

Nominal Bonds Inflation-Indexed Bonds

Expectedsyndication


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Click to edit Master title styleIncreasing average-weighted maturity


4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

Jul 12 Jul 13 Jul 14 Jul 15 Jul 16 Jul 17 Jul 18 Jul 19

NZGB Portfolio - Average Weighted Years to Maturity

Years


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Click to edit Master title styleEvolution of NZGB portfolio structure


From End-2012 To Current

Inflation-indexed Bonds Inflation-indexed Bonds

Treasury Bills

Treasury Bills

Nominal Bonds Nominal Bonds


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Click to edit Master title styleIIB breakeven & IIB issuance

Source: Bloomberg, The Treasury

0

1

2

3

4

5

6

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

Jun 2012 Jun 2013 Jun 2014 Jun 2015 Jun 2016 Jun 2017 Jun 2018 Jun 2019 Jun 2020

NZ$b%

IIB issuance (fiscal year) (RHS) Inflation breakeven for IIB2025

Forecast


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Click to edit Master title styleReal yields relative to peers

Source: Bloomberg

-3.5

-3.0

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

UK Germ JP US AU NZ

%

10-year real yield As at 27 August 2019


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Click to edit Master title styleA diverse investor base

Source: Bloomberg, RBNZ

0

10

20

30

40

50

60

70

80

90

Jul 95 Jul 98 Jul 01 Jul 04 Jul 07 Jul 10 Jul 13 Jul 16 Jul 19

Non-resident holdings of NZGBs (%)

%


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Click to edit Master title styleHoldings of NZGBs as at July 2019

Source: RBNZ

0.0

2.0

4.0

6.0

8.0

10.0

12.0

2020NB

2021NB

2023NB

2025NB

2025IIB

2027NB

2029NB

2030IIB

2033NB

2035IIB

2037NB

2040IIB

NZ$b


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Click to edit Master title styleEnvironment, Social and Governance (ESG)

• The New Zealand Government has clearly stated ESG objectives.

• Many of these are outlined in the Government’s Wellbeing Budget 2019 that focuses on the

wellbeing of people, the health of the environment and the strength of communities.

• https://treasury.govt.nz/publications/wellbeing-budget/wellbeing-budget-2019

• The Government is committed to progressing a climate change programme that allows for a

just transition to a low-emissions economy.

• Cabinet has agreed a policy framework which will drive climate change policy towards low

greenhouse gas emissions and climate resilience in New Zealand.

• https://www.mfe.govt.nz/climate-change/climate-change-and-government/climate-change-

programme

• In this context, the Treasury currently has no plans to issue bonds in a specific ESG format.

More broadly, it is cognizant of the contribution that efficient debt funding can make to the

Government’s ESG objectives.


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Click to edit Master title styleSupporting liquidity

• New primary access framework from 30 September 2019

• Government commitment to a minimum size for the NZGB market

• New bonds issued via syndication

• Focus on issuing into benchmark lines

• Provide certainty by publishing quarterly tender schedule

• Buyback activity to recycle funds out the curve

• Broadly match ACGB maturities


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Click to edit Master title styleDisclaimer

32

This presentation has been prepared by the Treasury 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 the Treasury 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 the Treasury 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 the Treasury’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 the Treasury as the date hereof, and do not bind the Treasury 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 the Treasury 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 the Treasury’s express written consent.

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