New Zealand Government Debt Market Outlook › sites › default... · 2018-03-28 · ongoing...
33
New Zealand Government Debt Market Outlook March 2018
Transcript of New Zealand Government Debt Market Outlook › sites › default... · 2018-03-28 · ongoing...
New Zealand GovernmentDebt Market OutlookMarch 2018
New Zealand Economic Outlook
NZDMO: Strategy and Announcements
New Zealand Government: Fiscal Priorities
New Zealand Government Bonds: Risk/Reward
Overview
2
Economic Outlook
-1.5-1-0.500.511.522.53
-4
-2
0
2
4
6
8
2000 2003 2006 2009 2012 2015 2018 2021
Quarterly growth (RHS) Annual average % change
Real GDP (Production measure)
Forecast
Quarterly
Growth remains robust
Source: The Treasury, HYEFU 2017
4
800
1000
1200
1400
Jun-04 Jun-07 Jun-10 Jun-13 Jun-16 Jun-19 Jun-22Quarterly
Terms of trade
Index (2009/10=1000)
Forecast
Terms of trade elevated
Source: The Treasury, HYEFU 2017
5
Net migration to moderate
Source: The Treasury, HYEFU 2017
6
-1
0
1
2
3
4
-20
0
20
40
60
80
Jun-04 Jun-07 Jun-10 Jun-13 Jun-16 Jun-19 Jun-22
Annual permanent and long-term net migrationWorking age population growth (RHS)
Net inflow (000s)
Forecast
Annual average % change
6162636465666768697071722
3
4
5
6
7
Mar 00 Mar 04 Mar 08 Mar 12 Mar 16NZ unemployment rateNZ participation rate (rh)
% of working-age population - inv% of labour force
Labour market tightening
Source: Bloomberg
7
0
1.5
3
4.5
6
1
3
5
7
9
2000 2003 2006 2009 2012 2015 2018 2021
90-day interest rate CPI inflation (RHS)
%
Forecast
Quarterly
Annual % change
Gradual rise in inflation
Source: The Treasury, HYEFU 2017
8
Inflation divergence
Source: Statistics New Zealand
9
Fiscal Priorities
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.
Budget Responsibility Rules
Source: Budget Policy Statement, December 2017
11
Source: The Treasury, HYEFU 2017
Operating surpluses sustained
12
-25
-20
-15
-10
-5
0
5
10
15
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
2019
2021
Year ending 30 JuneOBEGAL (Operating Balance Excluding Gains and Losses)
NZ$b
Forecast
Source: The Treasury, HYEFU 2017
-15
-10
-5
0
5
10
15
2017 2018 2019 2020 2021 2022
NZ$b
Year ending 30 JuneOperating Capital Residual cash
Capital spending impacts residual cash
13
Source: The Treasury, HYEFU 2017
0
5
10
15
20
25
30
35
0
10
20
30
40
50
60
70
80
2008 2010 2012 2014 2016 2018 2020 2022
NZ$b
Year ending 30 June
Net core Crown debt % of nominal GDP (RHS)
Forecast
% of GDP
Net core Crown debt contained
14
18
19
20
21
22
23
24
25
26
27
28
2013 2014 2015 2016 2017 2018 2019 2020 2021
May-14 Dec-14 May-15 Dec-15 May-16 Dec-16 May-17
% of GDPForecast Net Debt as % of GDP
Source: The Treasury
Credibility in achieving forecasts
15
0%
5%
10%
15%
20%
25%
30%
0
5
10
15
20
2519
9519
9619
9719
9819
9920
0020
0120
0220
0320
0420
0520
0620
0720
0820
0920
1020
1120
1220
1320
1420
1520
1620
1720
1820
1920
2020
2120
22
Bond Programme NZGBs as % GDP
NZ$b
Source: The Treasury’s NZDMO
NZGBs maintained above 20% of GDP
16
New Zealand Government Bonds: Risk/Reward
Moody’sAaa/Aaa (stable)
“New Zealand’s credit profile reflects its very high economic resilience, very strong institutions and political effectiveness and a strong fiscal position compared to peers.” July 2017
Standard & Poor’sAA+/AA (stable)
“New Zealand has monetary and fiscal flexibility, a resilient economy, and institutions conducive to swift and decisive policy actions. The high level of external liabilities is New Zealand’s main credit weakness” Jan 2018
FitchAA+/AA (stable)
“New Zealand’s ‘AA’ rating reflects the country’s strong macroeconomic policy framework and prudent fiscal management, reinforced by governance standards and a business environment that are rated among the best globally by the World Bank.” Mar 2017
Solid Credit Rating
Source: Moody’s Investor Service, Standard & Poor’s, Fitch Ratings
18
Source: World Bank Worldwide Governance Indicators 2016
70
80
90
100Control of Corruption
Government Effectiveness
Political Stability andAbsence of
Violence/Terrorism
Regulatory Quality
Rule of Law
Voice and Accountability
Sovereigns rated AA/Aa2 and higher (average) New Zealand
Strong institutions
Worldwide Governance Indicators – World Bank (percentile rank)
19
Source: CIA 2017 Estimate, Bloomberg
0 50 100 150 200 250Japan
GreeceItaly
PortugalBelgiumCanada
SpainFrance
United KingdomAustria
United StatesHungary
IrelandGermany
FinlandIsrael
NetherlandsIceland
AustraliaPoland
Hong KongSouth Korea
Czech RepublicSwedenNorway
DenmarkSwitzerland
New ZealandTaiwan
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.
Strong balance sheet
20
Improvement in NIIP
-85
-80
-75
-70
-65
-60
-55
-50
2007 2010 2013 2016 2019 2022
Net international investment position
Australia New Zealand
% of GDP
Forecast
Source: The Treasury
21
Attractive real yields
Source: Bloomberg
22
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
UK Germ JP US AU NZ
10Y Real Yields (IIB Yield) 10Y Inflation Breakevens
%
NZDMO: Strategy and Announcements
Source: The Treasury’s NZDMO
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 New Zealand 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.
24
0
10
20
30
40
50
60
70
80
02468
101214161820
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
NZ$bNZ$b
Annual bond issuance - year ended JuneTotal bonds oustanding (RHS)
Forecast
Source: The Treasury’s NZDMO
Steady issuance profile
25
From end-2012 To Current
0.0
2.0
4.0
6.0
8.0
10.0
12.0
Mar19
Apr20
May21
Apr23
Apr25
Sep25
Apr27
Apr29
Sep30
Apr33
Sep35
Apr37
Sep40
Outstanding - Nominal Outstanding - IIB Available capacity
NZ$b
Nom
Source: The Treasury’s NZDMO
Evolution of portfolio structure (I)
26
0.0
2.0
4.0
6.0
8.0
10.0
12.0
Apr13
Apr15
Feb16
Dec17
Mar19
May21
Apr23
Apr25
Sep25
Apr27
Apr29
Sep30
Apr33
Sep35
Apr37
Sep40
Outstanding - Nominal Outstanding - IIB Available capacity
NZ$b
Evolution of portfolio structure (II)
From End-2012 To End-2017Inflation-Indexed Bonds
74%
5%
21%
82%
16%2%
Nominal Bonds
Treasury Bills
Inflation-Indexed Bonds
Nominal Bonds
Treasury Bills
Source: The Treasury’s NZDMO
27
5.0
5.5
6.0
6.5
7.0
7.5
Dec 12 Dec 13 Dec 14 Dec 15 Dec 16 Dec 17
Years
NZGB Portfolio - Average Years to Maturity
Source: The Treasury’s NZDMO
Evolution of portfolio structure (III)
28
• 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
Supporting liquidity
Source: The Treasury’s NZDMO
29
0
10
20
30
40
50
60
70
80
90
0
10000
20000
30000
40000
50000
60000
70000
80000
Apr 94 Apr 97 Apr 00 Apr 03 Apr 06 Apr 09 Apr 12 Apr 15Resident holdings of NZGBs (NZ$m)Non-resident holdings of NZGBs (NZ$m)Non-resident holdings of NZGBs (%) (RH)
%NZ$m
Maintaining diverse investor base
Source: Bloomberg, RBNZ
30
Forecast Domestic Bond Programme – HYEFU, December 2017
• Reiterated intention to syndicate NZGB 20 April 2029 before 30 June 2018
• Up to NZ$5b of NZGB 15 March 2019 to be repurchased prior to 30 June 2018
• Maintain levels of NZGBs on issue at not less than 20% of GDP over time
Year ending 30 June (face value) 2018 2019 2020 2021 2022 TotalGross NZGB issuance ($ billion) 7.0 7.0 7.0 7.0 7.0 35.0NZGB maturities and repurchases ($ billion) 9.1 7.9 7.3 11.1 0.0 35.3Net NZGB issuance ($ billion) -2.1 -0.9 -0.3 -4.1 7.0 -0.3NZGBs on issue ($ billion) 72.3 71.4 71.2 67.1 74.1 n/aNZGBs on issue (percent of GDP) 25.2% 23.7% 22.5% 20.2% 21.4% n/a
Recent announcements
Source: The Treasury’s NZDMO
31
Coming up
Events• 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: [email protected]
• For further information see: https://www.nzdmo.govt.nz or https://www.treasury.govt.nz
• Contacts: Sarah Vrede, Head of New Zealand Debt Management OfficeKim Martin, Principal Strategist
32
33
Disclaimer• 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.
