Good time for Government to borrow

Last updated 09:18 09/06/2012

Relevant offers


New Zealand and Australia condemn Japan for resuming Southern Ocean whaling Education Minister Hekia Parata announces Marlborough colleges decision Live Chat replay: Chief Social Worker Paul Nixon talks child abuse in NZ Partner of Kiwi detainee speaks out about detention centre struggles Jenny Shipley: Why we need a silver fern flag Faces of Innocents: Too many children are dying, are we about to break another promise? Children's flag referendum views are being heard by voters in their families 'Our job is not to censor. We're not serving the political elite, business or corporations' Stacey Kirk: Strewth! Join Australia? They're a bunch of flaming galahs! 'I don't want to be prime minister' – Jacinda Ardern

The Government is hell-bent on lowering its debt, but fixed-income experts say now is the perfect time for the Government to up its borrowing.

Why? To save tens of million of dollars a year in interest costs.

The advice, which runs counter to the Government's current bent, comes as demand for so-called safe-haven assets is on the rise again, with international investors increasingly fearful that the European debt crisis will tip over into the wider global economy.

New Zealand, at arm's length from the eye of the fiscal storm, has been one of the beneficiaries of this flight to safety, with investors prepared to accept lower interest payments to hold non-eurozone debt.

Yields on New Zealand 10-year government bonds recently traded at 3.375 per cent, historically low, well shy of the 5.85 per cent Kiwis have paid on average, but attractive compared with US 10-year Treasuries trading about 1.5 per cent.

Currently the Debt Management Office – which handles the Government's borrowing requirements – is planning to issue $13.5 billion in longer-dated bonds next year.

But Annette Beacher, head of Asia-Pacific research for financial services provider TD Securities, says that should be lifted by a further $1.5b.

Beacher is not saying the Government should increase its debt long-term, but shuffle forward some of its borrowing because conditions are better now than they may be later.

Issuing $1.5b of 10-year bonds at today's rates would cost the Government $50.6m a year in interest, versus the $87.8m a year it would typically pay.

Ad Feedback



Special offers
Opinion poll

Where do you stand on political coat-tail riding?

If it gets marginalised voices into Parliament, I'm for it.

I'm against it - if you don't get the votes, you shouldn't be there.

It's just part of the political game.

Vote Result

Related story: Voters reject riding on the coat-tails

Featured Promotions

Sponsored Content