Corporates are issuing more bonds to lock in cheap funding while local yields hit record lows.
Fonterra last week raised $150 million in March 2023 bonds, at 4.42 per cent a year - a margin of 1.55 per cent over the underlying equivalent market swap rate.
Power generator Meridian is considering an offer of up to $100 million in fixed rate bonds to institutional and New Zealand retail investors and ASB Bank yesterday launched a three-year floating rate note issue, aimed at raising $100 million.
Mark Brown, fixed interest portfolio manager at Harbour Asset Management, said other bond issues were likely to follow as local yields continued to make record lows.
In the bond markets, the 10-year swap rate yesterday was at 3.04 per cent, the five-year at 2.63 per cent and the three-year at 2.44 per cent - all record lows. Government 2023 bond yields were at 2.51 per cent, also a record.
The key drivers have been expectations that the Reserve Bank would resume its easing cycle this year and cut its official cash rate to 2 per cent from 2.5 per cent.
"We have a Reserve Bank easing cycle that is still in play and we think it will be executed on in the next few months," said Westpac senior markets strategist Imre Speizer.
"Globally, we are still seeing interest rates falling due to global central bank easing."
Harbour Asset's Brown said local rates were low based on growing expectations that the Reserve Bank would resume its easing regime - possibly as early as next week's official cash rate review.
The other dynamic at play was that overseas credit spreads - the difference between sovereign bond yields and corporate bond yields - were rising because of increased stress in the financial markets, largely brought on by the slump in oil prices.
"So what it has meant is that the costs of borrowing overseas have gone up a lot," Brown said. "The [local corporates] are getting cheaper funding here than they would have by borrowing from offshore and bringing it back," he said.
"Short-term rates look like they are going to keep tracking down for the time being."