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NZ bond auction falls short as market volatility deters bids

NZ bond auction falls $50M short as market volatility deters bidders

Aug. 11 (BusinessDesk) – The New Zealand Treasury only managed to sell $100 million of the $150 million of bonds offered today in the first sale since America lost its top credit rating, driving down yields on government debt.

The Treasury’s Debt Management Office attracted just $25 million of bids for the $100 million of 6% bonds maturing April 2015 it offered. It sold the $25 million at an average yield of 3.51%.

The department made up some of the shortfall by accepting $75 million of bids for it 5.5% bonds maturing April 2023, more than the $50 million on offer, which were sold at an average yield of 4.52%.

Government bonds have soared in the wake of the U.S. Congress’s protracted stoush over raising the debt ceiling and the subsequent rating downgrade by Standard and Poor’s to AA+.

In that time, Wall Street’s fear gauge, the Chicago Board Options Exchange Market Volatility Index, has climbed to its highest levels since early 2009, as markets reeled from the global financial crisis.

“Maybe some of the more recent offshore buyers of NZ bonds are being cautious at the moment,” said Andrew Michl, who helps manage $3 billion of fixed interest and cash at OnePath NZ. “People are waiting for things to settle down a bit. Let’s see where spreads settle down.”

America’s AA+ credit rating now matches New Zealand’s, which is on negative outlook with Standard & Poor’s.

Michl said the possibility of a downgrade of New Zealand’s rating is “still on the cards.”

Still, there is demand for the debt which will return as investors start feeling more confident about the direction of financial markets and the global economy. New Zealand debt allows investors to diversify away from the U.S. and Europe.

Investors will also be looking for a home for their holdings of November 2011 bonds when they mature this year.

“Our view is that they (interest rates) stay low for some extended period of time so we don’t see them as being expensive,” Michl said.

Just two weeks ago investors were preparing for local rates to increase after Reserve Bank Governor Alan Bollard said there was “little need” for his emergency cut in March to stay in place.

The government raised record $20 billion in the financial year ended June 30 to finance budget deficits and help pay for the damage caused by multiple earthquakes in Canterbury. This year’s sale programme is for $13.5 billion of debt.


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