New Zealand Government Debt Market Outlook. February 2018

Transcription

1 New Zealand Government Debt Market Outlook February 2018

2 Overview New Zealand Economic Outlook New Zealand Government: Fiscal Priorities New Zealand Government Bonds: Risk/Reward NZDMO: Strategy and Announcements 2

3 Economic Outlook

4 Growth remains robust Real GDP (Production measure) Forecast Quarterly Quarterly growth (RHS) Annual average % change Source: The Treasury, HYEFU

5 Net migration moderating Net inflow (000s) 80 Annual average % change Forecast Jun-04 Jun-07 Jun-10 Jun-13 Jun-16 Jun-19 Jun-22 Annual permanent and long-term net migration Working age population growth (RHS) Source: The Treasury, HYEFU

6 Housing construction picks up % of real expenditure GDP Forecast Real residential investment Source: The Treasury, HYEFU

7 Private consumption supported Annual average % change 8 6 Forecast Quarterly Real private consumption Source: The Treasury, HYEFU

8 Terms of trade elevated Index (2009/10=1000) 1400 Forecast Jun-04 Jun-07 Jun-10 Jun-13 Jun-16 Jun-19 Jun-22 Quarterly Terms of trade Source: The Treasury, HYEFU

9 Labour market tightens % of labour force % of working-age population - inv 2 Mar 00 Mar 04 Mar 08 Mar 12 Mar 16 NZ unemployment rate NZ participation rate (rh) Source: Bloomberg 9

10 Gradual rise in inflation 9 7 % Annual % change 6 Forecast Quarterly 90-day interest rate CPI inflation (RHS) 0 Source: The Treasury, HYEFU

11 Fiscal Priorities

12 Budget Responsibility Rules 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. Source: Budget Policy Statement, December

13 Operating surpluses sustained NZ$b Forecast Year ending 30 June OBEGAL (Operating Balance Excluding Gains and Losses) Source: The Treasury, HYEFU

14 Capital spending impacts residual cash NZ$b Year ending 30 June Operating Capital Residual cash Source: The Treasury, HYEFU

15 Net core Crown debt contained NZ$b Forecast % of GDP Year ending 30 June 0 Net core Crown debt % of nominal GDP (RHS) Source: The Treasury, HYEFU

16 Credibility in achieving forecasts Forecast Net Debt as % of GDP % of GDP May-14 Dec-14 May-15 Dec-15 May-16 Dec-16 May Source: The Treasury 16

17 NZGBs maintained above 20% of GDP NZ$b 25 30% % 20% 15% 10 10% 5 5% % Bond Programme NZGBs as % GDP Source: The Treasury s NZDMO 17

18 New Zealand Government Bonds: Risk/Reward

19 Solid Credit Rating Moody s Aaa/Aaa (stable) Standard & Poor s AA+/AA (stable) Fitch AA+/AA (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 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 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 Source: Moody s Investor Service, Standard & Poor s, Fitch Ratings 19

20 Strong institutions Worldwide Governance Indicators World Bank (percentile rank) Control of Corruption 100 Voice and Accountability Government Effectiveness 70 Rule of Law Political Stability and Absence of Violence/Terrorism Regulatory Quality Sovereigns rated AA/Aa2 and higher (average) New Zealand Source: World Bank Worldwide Governance Indicators

21 Strong balance sheet Taiwan New Zealand Switzerland Denmark Norway Sweden Czech Republic South Korea Hong Kong Poland Australia Iceland Netherlands Israel Finland Germany Ireland Hungary United States Austria United Kingdom France Spain Canada Belgium Portugal Italy Greece Japan 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. Source: CIA 2017 Estimate, Bloomberg 21

22 Improvement in NIIP % of GDP -50 Net international investment position Forecast Australia New Zealand Source: The Treasury 22

23 Attractive real yields % UK Germ JP US AU NZ 10Y Real Yields (IIB Yield) 10Y Inflation Breakevens Source: Bloomberg 23

24 NZDMO: Strategy and Announcements

25 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 NZ 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. Source: The Treasury s NZDMO 25

26 Steady issuance profile NZ$b Annual bond issuance - year ended June Total bonds oustanding (RHS) Forecast NZ$b Source: The Treasury s NZDMO 26

27 Evolution of portfolio structure (I) From Early-2013 To Current NZ$b 12.0 NZ$b Apr 13 Apr 15 Feb 16 Dec 17 Mar 19 May Apr Apr Sep Apr Apr Sep Apr Sep Apr Sep Outstanding - Nominal Outstanding - IIB Available capacity 0.0 Mar 19 Apr 20 May 21 Apr 23 Apr 25 Sep 25 Apr 27 Apr 29 Sep 30 Apr 33 Sep 35 Apr 37 Sep 40 Outstanding - Nominal Outstanding - IIB Available capacity No m Source: The Treasury s NZDMO 27

28 Evolution of portfolio structure (II) From End-2012 Inflation-Indexed Bonds To End-2017 Inflation-Indexed Bonds Treasury Bills 16% 2% 21% Treasury Bills 5% 82% 74% Nominal Bonds Nominal Bonds Source: The Treasury s NZDMO 28

29 Evolution of portfolio structure (III) Years NZGB Portfolio - Average Years to Maturity 5.0 Dec 12 Dec 13 Dec 14 Dec 15 Dec 16 Dec 17 Source: The Treasury s NZDMO 29

30 Supporting liquidity 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 Source: The Treasury s NZDMO 30

31 Maintaining diverse investor base NZ$m Apr 94 Apr 97 Apr 00 Apr 03 Apr 06 Apr 09 Apr 12 Apr 15 Resident holdings of NZGBs (NZ$m) Non-resident holdings of NZGBs (NZ$m) Non-resident holdings of NZGBs (%) (RH) % Source: Bloomberg, RBNZ 31

32 Recent announcements Forecast Domestic Bond Programme HYEFU, December 2017 Year ending 30 June (face value) Total Gross NZGB issuance ($ billion) NZGB maturities and repurchases ($ billion) Net NZGB issuance ($ billion) NZGBs on issue ($ billion) n/a NZGBs on issue (percent of GDP) 25.2% 23.7% 22.5% 20.2% 21.4% n/a 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 Source: The Treasury s NZDMO 32

33 Coming up Events Syndication of NZGB 20 April 2029 before 30 June 2018 Commence repurchases of NZGB 15 March 2019 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 updates from the NZDMO: For further information see: or Contacts: Sarah Vrede, Head of New Zealand Debt Management Office Kim Martin, Principal Strategist 33

34 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.