Govt introduces longer-dated bonds

The Government is upping the amount of money it is raising from the sale of bonds in the current financial year by $1 billion and is signalling the sale of more longer-dated bonds.

The New Zealand Debt Management Office (NZDMO), which manages the issuance of government bonds, said it has already completed $4.1 billion of the $4.5b bond sale programme for the 2008/09 year and has decided to increase the size of the programme to $5.5b.

This means the Government will borrow more via the sale of domestic bonds in the current financial year than previously signalled.

Traders said they expect the size of the bond programme to rise substantially next year and the year after as the Government runs bigger budget deficits.

The Government signalled a move to a new benchmark 10-year bond for the local debt market and the possibility of a new 15 year bond.

The NZDMO said it would offer a bond maturing on May 15, 2021 in its next bond tender on May 7. The coupon, or interest rate the bond pays, will be announced on May 6.

Once issued, or sold, government bonds trade on what is known as a secondary market.

Investors like liquidity in this market and this is achieved by selling bonds the market adopts as so-called benchmark maturities.

Finance Minister Bill English said the market's preference was for a longer-dated bond that could become a new ten-year benchmark bond.

"Issuing longer-dated bonds was also one of the recommendations from the Prime Minister's Jobs Summit in February and I'm pleased to be able to quickly achieve this," Mr English said.

The 2009/10 domestic debt programme will be announced on May 28 in conjunction with the Government's budget.

A dealer who declined to be named said the market was expecting a new benchmark bond and today's announcement clarified its arrival.

The increase in the size of the programme was not expected but it was not unusual.

"They were ahead in the programme so why not keep issuing."

NZPA