OUTLOOK FOR THE NEW ZEALAND GOVERNMENT DEBT MARKET. 1 The Treasury

Transcription

1 OUTLOOK FOR THE NEW ZEALAND GOVERNMENT DEBT MARKET 1 The Treasury

2 TODAY Economic outlook New Zealand Government: risk/reward Fiscal priorities NZDMO s strategy What to watch for 2

3 1. ECONOMIC OUTLOOK 3

4 STRONG ECONOMIC GROWTH Production-based GDP Annual average % change 7 6 Forecast Jun-00 Jun-03 Jun-06 Jun-09 Jun-12 Jun-15 Jun-18 Jun-21 Quarterly Source: Statistics NZ, Treasury 4

5 RECORD HIGH MIGRATION Net inward migration Annual total (000s) Forecast Assumption Jun-00 Jun-03 Jun-06 Jun-09 Jun-12 Jun-15 Jun-18 Jun-21 Quarterly Half Year Update Statistics New Zealand Source: Statistics NZ, Treasury 5

6 DRIVING CONSUMER SPENDING Private consumption Annual average % change 7 6 Forecast Jun-00 Jun-03 Jun-06 Jun-09 Jun-12 Jun-15 Jun-18 Jun-21 Quarterly Source: Statistics NZ, Treasury 6

7 AND HOUSING CONSTRUCTION Residential consents and construction 12-month moving sum $millions 2009/10 prices Forecast Jun-00 Jun-03 Jun-06 Jun-09 Jun-12 Jun-15 Jun-18 Jun-21 Quarterly All new dwelling consents (LHS) Residential investment (RHS) Source: Statistics NZ, Treasury 7

8 EXPORT OUTLOOK ALSO POSITIVE Services exports and exchange rate Goods terms of trade $millions Index Index Forecast Forecast Jun-00 Jun-03 Jun-06 Jun-09 Jun-12 Jun-15 Jun-18 Jun-21 Quarterly Half Year Update services exports Half Year Update TWI (RHS) 800 Jun-00 Jun-03 Jun-06 Jun-09 Jun-12 Jun-15 Jun-18 Jun-21 Quarterly Source: Statistics NZ, Treasury 8

9 LABOUR SUPPLY MATCHING DEMAND Unemployment and labour force participation rate % Forecast % Jun-00 Jun-03 Jun-06 Jun-09 Jun-12 Jun-15 Jun-18 Jun-21 Quarterly Unemployment rate Labour force participation rate (RHS, inverted) Source: Statistics NZ, Treasury 9

10 INFLATION STARTING TO NORMALISE CPI inflation Annual % change 8 6 Forecast Jun-00 Jun-03 Jun-06 Jun-09 Jun-12 Jun-15 Jun-18 Jun-21 Quarterly Headline inflation Tradables inflation Non-tradables inflation Source: Statistics NZ, Treasury 10

11 2. NEW ZEALAND GOVERNMENT: RISK/REWARD 11

12 SOLID CREDIT RATINGS Moody s Aaa/Aaa (stable) New Zealand s Aaa rating is based on the country s very high economic strength, very high institutional and fiscal strength and low susceptibility to event risk. Standard & Poor s AA+/AA (stable) New Zealand has monetary and fiscal flexibility, a resilient economy, and institutions conducive to swift and decisive policy actions. Fitch AA+/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. Source: Moody s Investor Service, Standard and Poor s, Fitch Ratings latest credit assessment 12

13 STABLE POLITICAL AND INSTITUTIONAL BACKDROP 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 New Zealand Sovereigns rated AA/Aa2 and higher (average) Source: World Bank, Bloomberg, Moody s Investor Service, Standard and Poor s, Fitch Ratings 13

14 STRONG BALANCE SHEET Gross Sovereign Debt to GDP Norway Switzerland New Zealand Hong Kong Denmark Sweden Australia Finland Israel Netherlands Iceland Germany United States Austria United Kingdom France Canada Spain Ireland Singapore Belgium Portugal Italy Greece Japan Source: Bloomberg % GDP 14

15 ATTRACTIVE NOMINAL YIELDS 10-year Nominal Bonds Yield % Feb 2011 Feb 2012 Feb 2013 Feb 2014 Feb 2015 Feb 2016 Feb 2017 NZ Aus US Germany Japan Switzerland Source: Bloomberg 15

16 ATTRACTIVE REAL YIELDS 10-year Inflation-Indexed Bonds % NZ Australia US UK Germany Japan Source: Bloomberg Real yield Break-even inflation 16

17 GOVERNMENT BOND YIELD CURVES % Term (years) Nominal bonds Inflation-indexed bonds (real yield) Source: Bloomberg 17

18 3. FISCAL PRIORITIES: DEC

19 CURRENT FISCAL PRIORITIES Previous fiscal priorities: Achieve operating surplus in 2014/15 Reduce net government debt to below 20% of GDP by 2020 Current fiscal priorities: Maintain rising operating surpluses Reduce net government debt to around 20% of GDP in 2020 Reduce net debt to within a range of 0 per cent to 20% of GDP in the long term 19

20 2014/15 SURPLUS ACHIEVED NZD billion 10 5 Forecast "The Government has set out a clear plan for the next three years, which involves returning to budget surplus in 2014/15." Budget Policy Statement, 16 February Operating Balance (ex gains and losses) Source: The Treasury 20

21 OUTLOOK FOR NET DEBT NZD billion 100 % GDP 40% Forecast 35% 30% 25% 50 20% % 10% 5% % Source: The Treasury Net Core Crown Debt % Nominal GDP (RHS) 21

22 STOCK AND FLOWS: 3-4 TIMES PRE-GFC NZD billion Forecast NZD billion Source: The Treasury Annual bond issuance Total bonds oustanding (RHS) 22

23 4. NZDMO S STRATEGY 23

24 FUNDING STRATEGY Balance Sheet Management approach Extend duration of the debt portfolio Reduce overall fiscal variability Reduce refinancing risk The role of Inflation-indexed bonds Build and maintain liquidity Diversify investor base Encourage intermediary participation Focus on domestic market issuance 24

25 AVERAGE DURATION EXTENDED Years to maturity (12mma) Feb-2012 Feb-2013 Feb-2014 Feb-2015 Feb-2016 Feb-2017 Source: The Treasury 25

26 PORTFOLIO COMPOSITION REDUCES FISCAL VARIABILITY, REFINANCING RISK October 2012 February % 2% 17% 5% 82% 78% Source: The Treasury 26

27 INFLATION-INDEXED BONDS - OVERVIEW Instrument Total outstanding Source: The Treasury New Zealand Government Inflation-Indexed Bonds $13.1 billion % of total bond portfolio 17.8% Maturities Currency Domestic Currency Rating Linked to Primary Issuance Fees and Taxation Sep-25, Sep-30, Sep-35, new Sep-40 before 30 June 2017 NZD AA+/Aaa/AA+ (all stable) Consumers Price Index (CPI), with no floor in place Issued in multiples of $1m via syndication and tender No fees, AIL or NRWT applies to coupon payments* 27

28 INFLATION-INDEXED BONDS - STRATEGY Role of inflation-indexed bonds in the portfolio Extend and maintain duration of the debt portfolio Diversify the investor base Reduce overall fiscal variability through the cycle Issuance strategy Focus issuance in longest maturity Syndicated launch, blackout period, regular tenders Maintain capacity below $6 billion technical limit 28

29 INFLATION-INDEXED BONDS ISSUING THROUGH THE CYCLE % 2.5 Outstanding IIBs 10yr break-even inflation Mid-point of OCR band $M 14, ,000 10, , ,000 4, , Source: The Treasury 29

30 ISSUANCE CAPACITY ACROSS MATURITIES NZD billion Dec 17 Mar 19 Apr 20 May 21 Apr 23 Apr 25 Sep 25 Apr 27 Sep 30 Apr 33 Sep 35 Apr 37 Sep 40 No m Outstanding - Nominal Outstanding - IIB Available capacity Source: The Treasury 30

31 SUPPORTING PRIMARY AND SECONDARY MARKET LIQUIDITY Quarterly tender schedule announcements include fixed amounts and specific maturities New bonds launched via syndication Tender issuance into benchmark lines Focus on domestic market Manage cash flows around upcoming bond maturities Broadly match Australian Commonwealth Government bond maturities 31

32 ENCOURAGE INTERMEDIARY PARTICIPATION Investors need an efficient, reliable secondary market Intermediaries make the secondary market Efficient, well-functioning market benefits all participants NZDMO s actions are intended to support efficient, sustainable functioning of both primary and secondary markets NZDMO supports intermediaries who consistently support secondary market liquidity 32

33 CONSISTENT INCREASE IN OFFSHORE AND DOMESTIC DEMAND NZD million % 80, ,000 60,000 50,000 40,000 30,000 20,000 10, Estimated overseas holdings Estimated domestic holdings Proportion held for non-residents (RHS) Source: RBNZ 33

34 OFFSHORE DEMAND Central bank mandates Demand from duration players New investors in inflation indexed bonds DOMESTIC DEMAND Prudential requirements drive domestic bank balance sheet demand KiwiSaver 34

35 5. WHAT TO WATCH FOR 35

36 Latest forecasts: Half Year Economic & Fiscal Update Updated bond programme for 2016/17 New September 2040 IIB planned for H2 2016/17 Forecast bond programmes to 2020/21 General election set for 23 Sep 2017 Ongoing communications: Economic and Fiscal Updates: Budget (May), Half-Year(Dec) and Pre-Election Quarterly bond tender schedule released near the end of March, June, September, December Updates related to syndication of new bonds Media Statement distribution list for key communications 36