Good time for Government to borrow

JASON KRUPP
Last updated 09:18 09/06/2012

Relevant offers

Politics

Prime Minister John Key has confidence in OIO despite Onetai farm sale 'mistake' Labour's Chris Hipkins schools up on having a baby 'Alarming' non-voting levels of NZ youth must change: Winston Peters Pressure on water bottlers to pay up John Key's lawyer linked to 'sham' trust involved in failed Auckland property development Spotlight on possible John Key visit to Marlborough's theatre Heat on Maori Television chief executive Paora Maxwell over staff turnover Ted Cruz supporter 'feels like wind sucked out of our sails' as campaign ends NZ unemployment jumps to 5.7 per cent despite strong job growth Pharmac has been given a $50m total funding boost between Government and DHB funding

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

- BusinessDay.co.nz

Comments

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