NZ: Government Funding Options
Data Flash (New Zealand)
Will the Debt Management Office cancel the $350m tender planned for 21 June? Surprisingly strong cash flows (our estimate: around $800m ahead of forecast) would allow the Government to cancel the planned 21 June tender ($350m in total) if it wished. Such an announcement would be made at the time of the Budget in conjunction with the usual release of the timetable for the bond tender programme for the next fiscal year. The cancellation of the tender would help to generate a positive market response on Budget day.
However, the Debt Management Office may choose another option. It could continue its swap activity by basis swapping the $350m tender proceeds into LIBOR and investing offshore.
There are good arguments for either option. We attach 50:50 probabilities.
A new bond maturity could be announced on 24 May (Budget day)
The Debt Management Office aims to issue around $3 billion worth of each bond maturity. Therefore, the 31 May tender is likely to be the last for the 11/2011 bond. Currently $2.875bn of that bond is in the market. Another $175m tender would lift the amount to $3.05bn.
Details of a new maturity - to be sold in the first tender following the one on 31 May - could be announced on Budget day (24 May), together with other information on the 2001/02 funding programme.
The new bond is likely to be longer than the 2011, with a late 2012 or early 2013 maturity the most logical options. The bond would be tendered together with the 02/2005 maturity, of which only $922m is in the market so far.
Tender programme of $3 billion likely to be announced for 2001/02 Our expectation is that the economic and fiscal projections in the Budget will be consistent with an overall tender programme for 2001/02 of around $3 billion. That compares to maturities of around $2.6bn. Part of the funds raised ($600m) are likely to be earmarked as the first contribution to Finance Minister Cullen's new superannuation fund. However, with the future of that fund increasingly uncertain, the bond tender programme may be adjusted accordingly at the time of the December fiscal update.
Ulf Schoefisch, Chief Economist, New Zealand (64) 9 351 1375