OUTLOOK FOR THE NEW ZEALAND GOVERNMENT DEBT MARKET
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OUTLOOK FOR
THE NEW ZEALAND
GOVERNMENT
DEBT MARKET
1
© The Treasury
All photography sourced from: http://www.nzstory.govt.nz
OVERVIEW
1 New Zealand Economic Outlook
2 New Zealand Government Bonds: Risk/Reward
3 Fiscal Priorities: Budget – May 2017
4 NZDMO: Announcements and StrategyAnnouncemets and
strategy
ZDMO Announcements and strategy
2
1. ECONOMIC OUTLOOK
3
SOLID GROWTH OUTLOOK
(Annual average % change)
7
Forecast
6
5
4
3
2
1
0
-1
-2
-3
Jun-00 Jun-03 Jun-06 Jun-09 Jun-12 Jun-15 Jun-18 Jun-21
Quarterly
Real Production GDP Growth - Budget Update
Source: Statistics NZ, Treasury 4
NET MIGRATION REMAINS STRONG
(annual total)
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
Forecast
0
-10,000
-20,000
Jun-00 Jun-03 Jun-06 Jun-09 Jun-12 Jun-15 Jun-18 Jun-21
Quarterly
Net Migration - Budget Update
Source: Statistics NZ, Treasury
5
EXPORT OUTLOOK POSITIVE
Services Exports Goods Terms of Trade
(Annual average % change) (index)
25 1,400
Forecast
20 1,300
Forecast
15
1,200
10
1,100
5
1,000
0
900
-5
-10 800
Jun-00 Jun-03 Jun-06 Jun-09 Jun-12 Jun-15 Jun-18 Jun-21 Jun-00 Jun-03 Jun-06 Jun-09 Jun-12 Jun-15 Jun-18 Jun-21
Quarterly
Quarterly
Real Services Exports - Budget Update SNA Goods Terms of Trade - Budget Update
Source: Statistics NZ, Treasury 6
LABOUR SUPPLY MATCHING DEMAND
(% of labour force) (% of working-age population - inv)
7 62
63
6 64
65
5 66
67
4 68
69
3 70
71
2 72
Mar 00 Mar 02 Mar 04 Mar 06 Mar 08 Mar 10 Mar 12 Mar 14 Mar 16
NZ unemployment rate NZ participation rate (rh)
Source: Statistics NZ, Treasury 7
INFLATION TO RETURN TO TARGET
(%)
7.0
6.0
Forecasts
5.0
4.0
3.0
2.0
1.0
0.0
-1.0
-2.0
-3.0
Jun 00 Jun 03 Jun 06 Jun 09 Jun 12 Jun 15 Jun 18 Jun 21
NZ Headline CPI Inflation
NZ Non-Tradables CPI Inflation
NZ Tradables CPI Inflation
Source: Statistics NZ, Treasury 8
NZ NET INTERNATIONAL INVESTMENT
POSITION HAS IMPROVED
(% of GDP) (% of GDP)
-50 0
-55 -1
-2
-60
-3
-65
-4
-70 Forecast
-5
-75
-6
-80
-7
-85 -8
-90 -9
Jun-00 Jun-03 Jun-06 Jun-09 Jun-12 Jun-15 Jun-18
Quarterly
NZ Net International Investment Position (% of GDP)
NZ Current Account (% GDP) (rh)
Source: Treasury 9
2. NZGBS:
RISK/REWARD
10SOLID CREDIT RATINGS
“New Zealand’s credit profile reflects its very high
Moody’s economic resilience, very strong institutions and
political effectiveness and a strong fiscal position
Aaa/Aaa (stable) compared to peers.” 20 July 2017
“New Zealand has monetary and fiscal flexibility,
Standard & Poor’s a resilient economy, and institutions conducive to
swift and decisive policy actions.” 19 Jan 2017
AA+/AA (stable)
“New Zealand’s ‘AA’ rating reflects the country’s
strong macroeconomic policy framework and
Fitch prudent fiscal management, reinforced by
governance standards and a business
AA+/AA (stable) environment that are rated among the best
globally by the World Bank.” 13 Mar 2017
Source: Moody’s Investor Service, Standard and Poor’s, Fitch Ratings – latest credit assessment 11NZ’S STABILITY STANDS OUT
Worldwide Governance Indicators – World Bank (percentile rank)
Control of Corruption
100
90
Voice and Accountability Government Effectiveness
80
70
Political Stability and Absence
Rule of Law
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 12STRONG BALANCE SHEET
Luxembourg
Sweden
Norway
Turkey
Taiwan
New Zealand
Switzerland
Denmark
Hong Kong
Czech Republic
Poland
South Korea
Australia
Slovakia
Iceland
Netherlands
Israel
Finland
Germany
United States
Hungary
Ireland
Slovenia
Austria
United Kingdom
France Sovereign Debt as % of GDP
Canada
Spain
Belgium
Portugal
Italy
Greece
Japan
0 50 100 150 200 250
%
GDP
Source: Bloomberg 13POSITIVE SPREAD TO PEERS
(%) NZ-US 10Y Bond Yields (%)
4 NZ-AU 10Y Bond Yields 9
NZ 10Y Bond Yields (RH)
3 8
7
2
6
1
5
0
4
-1 3
-2 2
Jan 1997 Jan 2001 Jan 2005 Jan 2009 Jan 2013 Jan 2017
Source: Bloomberg, * Generic bond spreads
14ATTRACTIVE REAL YIELDS
(%)
4.0
3.0
2.0
1.0
0.0
-1.0
-2.0
-3.0
UK Germ JP US AU NZ*
10Y Real Yields (IIB Yield) 10Y Inflation Breakevens
* NZ data refers to the 2025 maturity
Source: Bloomberg 15GRADUAL IMPROVEMENT IN LIQUIDITY
(NZ$m)
5,000
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
Jan-00 Jan-03 Jan-06 Jan-09 Jan-12 Jan-15
Non-Repo (3mth average of weekly turnover)
Source: RBNZ 16WEAKENED LINK WITH CURRENCY
(%)
90 90
80 80
70 70
60 60
50 50
40 40
30 30
20 20
10 10
0 0
Mar 95 Mar 98 Mar 01 Mar 04 Mar 07 Mar 10 Mar 13 Mar 16
Non-resident holdings of NZGBs (%)
Source: Bloomberg NZ TWI (RH)
173. FISCAL PRIORITIES:
BUDGET - MAY 2017
18FISCAL PRIORITIES MET & EXTENDED
NZD billion
10 NZD billion Forecast
70 40%
Forecast
5 60 35%
30%
0 50
25%
40
-5
20%
"The Government has set out a 30
-10 clear plan for the next three 15%
years, which involves returning to
budget surplus in 2014/15."
20
Budget Policy Statement,
10%
-15 16 February 2012
10 5%
-20
0 0%
2009 2011 2013 2015 2017 2019 2021
2009 2011 2013 2015 2017 2019 2021
Operating Balance (ex gains and losses)
Net Core Crown Debt % Nominal GDP (RHS)
19STEADY BOND ISSUANCE
Year End 30 June
(face value) 2017 2018 2019 2020 2021 Total
Gross NZGB 8.0 7.0 7.0 7.0 6.0 35.0
issuance (NZ$b)
NZGB maturities and 4.8 11.5 6.5 7.3 11.1 41.1
repurchases (NZ$b)
Net NZGB issuance 3.1 -4.5 0.5 -0.3 -5.1
(NZ$b)
NZGBs on issue 75.4 70.9 71.5 71.2 66.1
(NZ$b)
Source: NZDMO - In conjunction with BEFU, 25 May 2017
20OUTTURNS BEATING EXPECTATIONS
% of GDP Forecast Net Debt as % of GDP
28
27
26
25
24
23
22
21
20
19 May-14 Dec-14 May-15 Dec-15 May-16 Dec-16 May-17
18
2013 2014 2015 2016 2017 2018 2019 2020 2021
Source: Treasury 21GOVERNMENT COMMITMENT TO MAINTAIN
NZGB ABOVE 20% OF GDP OVER TIME
% GDP
35%
Forecast Illustrative
30%
25%
20%
15%
10%
5%
0%
2000 2003 2006 2009 2012 2015 2018 2021 2024
Total NZGBs (% GDP, RHS)
Minimum NZGBs (% GDP, RHS)
Net Core Crown Debt (%GDP, RHS)
Total NZGBs - no minimum (% GDP, RHS)
Source: Treasury 22ANNUAL ISSUANCE STABILISED
NZD billion NZD billion
25.0 80
Forecast
70
20.0
60
50
15.0
40
10.0
30
20
5.0
10
0.0 0
2000 2003 2006 2009 2012 2015 2018 2021
Annual bond issuance Total bonds oustanding (RHS)
Source: Treasury 232. NZDMO
ANNOUNCEMENTS
AND STRATEGY
24FUNDING STRATEGY PRIORITIES
• Balance Sheet Management approach
Reduce overall fiscal variability
Reduce refinancing risk
Commitment to inflation-indexed bonds
• Build and maintain liquidity
Diversify investor base
Encourage intermediary participation
• Focus on domestic issuance
• Execute in a Transparent, Even-handed and
Consistent manner
25PORTFOLIO COMPOSITION REDUCES
FISCAL VARIABILITY, REFINANCING RISK
October 2012 July 2017
2%
16% 19%
5%
76%
82%
Source: The Treasury 26INTENTION TO SYNDICATE NZGB 2029
(NZD b)
12.0
10.0
8.0
6.0
4.0
2.0
0.0
Dec Mar Apr May Apr Apr Sep Apr Apr Sep Apr Sep Apr Sep
17 19 20 21 23 25 25 27 29 30 33 35 37 40
Outstanding - Nominal Outstanding - IIB Available capacity
No
m
Source: The Treasury 27CONSISTENT INCREASE IN OFFSHORE
AND DOMESTIC DEMAND
NZD million %
80,000 90
70,000 80
70
60,000
60
50,000
50
40,000
40
30,000
30
20,000
20
10,000 10
0 0
2001 2003 2005 2007 2009 2011 2013 2015 2017
Non-resident holdings of NZGBs
Resident holdings of NZGBs
Proportion held for non-residents (rh)
Source: RBNZ 28CONTINUE REPURCHASE PROGRAM
Non-Resident Holdings (%)
100
90
80
70
60
50
40
30
20
10
0
Jul 2015 Jan 2016 Jul 2016 Jan 2017
December 2017 (GB1217) March 2019 (GB0319) April 2020 (GB0420)
May 2021 (GB0521) April 2023 (GB0423) April 2025 (GB0425)
April 2027 (GB0427) April 2033 (GB0433) April 2037 (GB0437)
Source: RBNZ
29DISCLAIMER
Disclaimer
• Thi s presentation has been prepared by the New Zealand Debt Ma nagement Office (“NZDMO”) on behalf of the
New Zealand Government and is for general i nformation purposes only. By l istening to the presentation, or
rea ding the presentation materials, you a cknowledge a nd a gree to the contents of this disclaimer.
• To the ma ximum extent permitted by law, neither NZDMO nor the New Zealand Government makes a ny
representation, recommendation or warranty, express or i mplied as to the accuracy, completeness or currency of
a ny of the i nformation in this presentation and accept no responsibility o r l iability therefore. Data a re indicative
a nd a pproximate only, a nd all information is subject to change. This presentation is i ntended as a snapshot vi ew
of New Zealand only, a nd NZDMO a nd the New Zealand Government have no obligation, a nd do not underta ke
or a ccept a ny responsibility or obligation, to update, expand or correct a nything in this presentation or i nform
you of a ny ma tter a rising or coming to their notice, after the date of this presentation, which may a ffect any
ma tter referred to in this presentation.
• Thi s presentation contains forward-looking statements including information regarding NZDMO’s future bond
i s suances a nd the New Zealand Government’s forecast fiscal a nd economic performance based on current
i nformation, estimates a nd forecasts. Those s tatements a re subject to risks, uncertainties, a nd assumptions
whi ch are hard to predict or a nticipate, and therefore a ctual outcomes and performance may differ materially
from the s tatements. Any opinions expressed in this presentation reflect th e judgement of NZDMO a s the date
hereof, a nd do not bind NZDMO nor the New Zealand Government.
• Thi s presentation is not a product disclosure statement, disclosure document or other offer document under
New Zealand l aw or a ny other law. This presentation is not, a nd does not constitute financial advice. All
rea s onable ca re has been taken in relation to the preparation and collation of this presentation. Except for
s tatutory l iability which may not be excluded, no person, including NZDMO or a ny person mentioned in this
pres entation accepts responsibility for a ny l oss or damage howsoever occurring resulting from the use or reliance
on thi s presentation by a ny person. Past performance is not indicative of future performance a nd no guarantee
or future ri ghts are implied or given.
• Nothi ng i n this presentation is an offer to s ell, or s olicitation of a n offer to purchase, a ny s ecurities. This
pres entation must not be relied upon by a ny person for making a ny i nvestment decision a nd will not form part of
a ny i nvestment contract. The information provided in this presentation is not investment advi ce and does not
take i nto a ccount the investment objectives, financial situation or particular needs (including financial and
taxa tion issues) of a ny particular i nvestor. Any p erson considering investing i n New Zealand Government
s ecurities must refer to a ny releva nt offer documents and disclosures provided expressly i n connection with
thos e s ecurities a nd should take their own independent financial and legal advi ce on their proposed i nvestment.
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 s ecurities laws of a ny s tate or other jurisdiction of the United States. New
Zea land Government securities may not be offered or sold, directly or i ndirectly, i n the United States or to, or for
the a ccount or benefit of, any person i n the United States except in transactions exempt from, or not subject to,
the registration requirements of the U.S. Securities Act a nd a ny other applicable U.S. s tate securities laws.
• Thi s presentation may not be copied, distributed, disclosed or used wi thout NZDMO’s express written consent.
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