Market Outlook Fifth level May 2019 kim.martin@treasury.govt.nz - PowerPoint PPT Presentation

Click to edit Master title style • Click to edit Master text styles – Second level New Zealand Government Debt • Third level – Fourth level Market Outlook » Fifth level May 2019 kim.martin@treasury.govt.nz

Overview Click to edit Master title style • Click to edit Master text styles – Second level Fiscal outlook • Third level – Fourth level » Fifth level New Zealand Government Bonds: risk-reward Debt funding strategy

Click to edit Master title style • Click to edit Master text styles – Second level • Third level – Fourth level » Fifth level Fiscal outlook

Click to edit Master title style Operating surpluses sustained • Click to edit Master text styles NZ$billions 15 – Second level Forecast 10 • Third level 5 – Fourth level » Fifth level 0 -5 -10 -15 -20 -25 2009 2011 2013 2015 2017 2019 2021 2023 Year ending 30 June Operating Balance (excluding gains and losses) Source: The Treasury, HYEFU 2018

Click to edit Master title style Plans for capital spending NZ$billions • Click to edit Master text styles 15 – Second level 10 • Third level – Fourth level 5 » Fifth level 0 -5 -10 2018 2019 2020 2021 2022 2023 Year ending 30 June Operating expenditure Capital expenditure Residual cash Source: The Treasury, HYEFU 2018

Click to edit Master title style Net debt contained % of GDP NZ$billions • Click to edit Master text styles 80 32 Forecast – Second level 70 28 • Third level 60 24 – Fourth level 50 20 » Fifth level 40 16 30 12 20 8 10 4 0 0 2009 2011 2013 2015 2017 2019 2021 2023 Year ending 30 June Net core Crown debt % of nominal GDP (RHS) Source: The Treasury, HYEFU 2018

Click to edit Master title style New Zealand Government Bonds: risk-reward • Click to edit Master text styles – Second level • Third level – Fourth level » Fifth level

Click to edit Master title style S&P recently upgraded outlook • Click to edit Master text styles “New Zealand's credit profile reflects its very strong institutions Moody’s and policy effectiveness and a strong fiscal position compared to Aaa/Aaa (stable) peers. These credit features mitigate external and domestic – Second level vulnerabilities related to high reliance on external financing and elevated household debt.” Feb 2019 • Third level – Fourth level “ The ratings on New Zealand reflect the country's fiscal and Standard & Poor’s monetary policy flexibility, economic wealth and resilience, and AA+/AA (positive) » Fifth level stable public policy settings . These strengths provide the country with flexibility to offset potential risks related to its large external imbalances, high household and agriculture sector debt, dependence on commodity income, and financial system stability.” Jan 2019 “New Zealand's ratings are underpinned by very high governance Fitch standards, a demonstrated commitment to prudent fiscal AA+/AA (stable) management, and a credible policymaking framework that helps manage risks and respond to pressures. The country's high net external debt and elevated household debt are the key weaknesses for the credit profile.” Jan 2019 Source: Moody’s Investor Service, Standard & Poor’s, Fitch Ratings

Click to edit Master title style Strong institutions • Click to edit Master text styles Control of Corruption 100 – Second level 90 • Third level Voice and Accountability Government Effectiveness – Fourth level 80 » Fifth level 70 Political Stability and Rule of Law Absence of Violence/Terrorism Regulatory Quality Average of sovereigns rated AA (fc) and higher by S&P New Zealand Source: World Bank Worldwide Governance Indicators 2017

Click to edit Master title style Relative yield • Click to edit Master text styles % 5.0 – Second level 4.0 • Third level – Fourth level 3.0 » Fifth level 2.0 1.0 0.0 2013 2014 2015 2016 2017 2018 2019 10-year yield: NZGB (rated AA (fc) by S&P) 10-year yield: Average of sovereigns rated AA (fc) and higher by S&P Source: Bloomberg

Click to edit Master title style NZGB yields • Click to edit Master text styles % 2.5 – Second level 2.0 • Third level – Fourth level 1.5 » Fifth level 1.0 0.5 0.0 0 5 10 15 20 25 T erm (years) NZGB - nominal bonds* NZGB - inflation-indexed bonds (real yield)* * yields (mid rate) as at 29 April, 2019 Source: Bloomberg

Click to edit Master title style Debt funding strategy • Click to edit Master text styles – Second level • Third level – Fourth level » Fifth level

Click to edit Master title style Changing funding needs • Click to edit Master text styles NZ$b NZ$b 20 90 – Second level Forecast 18 80 • Third level 16 70 – Fourth level 14 60 12 » Fifth level 50 10 40 8 30 6 20 4 10 2 0 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Annual bond issuance - year ended June Total Market Bonds on Issue (RHS) Source: The Treasury

Click to edit Master title style Forecast borrowing programme • Click to edit Master text styles – Second level Year ending 30 June (face value) 2019 2020 2021 2022 2023 Total • Third level Gross NZGB issuance (NZ$ billion) 8.0 8.0 8.0 7.0 6.0 37.0 NZGB maturities and repurchases (NZ$ billion) 11.2 5.8 11.1 0.0 8.9 37.0 – Fourth level Net NZGB issuance (NZ$ billion) -3.2 2.2 -3.1 7.0 -2.9 0.0 » Fifth level NZGBs on issue (NZ$ billion) 71.0 73.2 70.1 77.1 74.2 n/a NZGBs on issue (percent of GDP) 23.5% 23.0% 20.9% 22.0% 20.2% n/a Forecast T-Bills on issue (NZ$ billion) 2 2 4 2 2 n/a Source: The Treasury, HYEFU 2018

Click to edit Master title style Current NZGB portfolio • Click to edit Master text styles NZ$b 12.0 – Second level 10.0 • Third level – Fourth level 8.0 » Fifth level 6.0 4.0 2.0 0.0 Apr May Apr Apr Sep Apr Apr Sep Apr Sep Apr Sep 20 21 23 25 25 27 29 30 33 35 37 40 As at 31 March, 2019 Source: The Treasury

Click to edit Master title style Increasing average-weighted maturity • Click to edit Master text styles NZGB Portfolio - Average Weighted Years to Maturity Years – Second level 8.5 • Third level 8.0 – Fourth level 7.5 » Fifth level 7.0 6.5 6.0 5.5 5.0 4.5 4.0 Apr 12 Apr 13 Apr 14 Apr 15 Apr 16 Apr 17 Apr 18 Apr 19 Source: The Treasury

Click to edit Master title style Syndication of new bonds • Click to edit Master text styles NZ$b 5.0 – Second level 4.5 4.0 • Third level 3.5 IIB – Fourth level Sep 3.0 2030 IIB » Fifth level Sep NB 2.5 2035 Apr 2037 2.0 1.5 IIB Sep NB NB NB NB 1.0 2025 Apr Apr Apr Apr NB IIB 2020 2027 2033 2029 Apr Sep 0.5 2025 2040 0.0 2012 2013 2014 2015 2016 2017 2018 Syndication volumes (calendar years) Nominal Bonds Inflation-Indexed Bonds Source: The Treasury

Click to edit Master title style A diverse investor base • Click to edit Master text styles % 90 – Second level 80 • Third level 70 – Fourth level 60 » Fifth level 50 40 30 20 10 0 Mar 95 Mar 98 Mar 01 Mar 04 Mar 07 Mar 10 Mar 13 Mar 16 Mar 19 Non-resident holdings of NZGBs (%) Source: Bloomberg, RBNZ

Click to edit Master title style Keeping informed • Click to edit Master text styles • Website : https://debtmanagement.treasury.govt.nz/ – Second level • Third level – Fourth level » Fifth level • Email queries: kim.martin@treasury.govt.nz debtmanagement@treasury.govt.nz