NZ$ bonds was solid overall in April and May - Westpac

Imre Speizer, NZ Market Strategist at Westpac, notes that the demand for NZ$ bonds was solid overall in April and May, but performance by bond type has been mixed.

Key Quotes

“NZGB outstandings (nominals and linkers) have been stable at $70bn-$75bn during the past two years. The pace of primary NZGB issuance via tenders is projected to be steady over Q2 and Q3 at $1.2bn. The composition will also be steady at $900m nominals and $300m linkers per quarter. The recently launched (via syndication in April) 2025 line will be tendered from 21 July onwards.

Demand for NZ$ bonds overall has been solid during the past year.

EMTN issuance, though, has slowed to a trickle. Demand for these is related to NZ’s yield advantage, which has declined significantly during the past two years.

In contrast, Kauri issuance remains strong. We attribute that to (a) better liquidity in this market, and (b) the higher participation of NZ domestic investors (around 50%).

Secondary NZGB demand was subdued in Q1 but rebounded in April and May. We attribute that to the bout of global risk aversion in Q1, with NZ assets regarded as “risky” rather than “risk-free” in a global context. Stability in April accelerated the global quest for yield, which benefitted NZ bonds.

We saw moderate swap market receiving in April and May. The RBNZ’s rate cut in April, plus Brexit potential, were likely factors.”