Earthquake bonds raise $26.6 million

Photo / APN

The Government has raised $26.6 million towards the costs of rebuilding Christchurch through an Earthquake Kiwi Bond but investors aren't getting much reward for their support.

The bond was announced at last year's budget as part of a plan to help fund the $5.5 billion in direct costs to the Government from the two major Canterbury quakes.

But the rate on the bond has dropped from 4 per cent to 2.75 per cent per annum since its launch.

Valerie Jeal, investor relations manager for the New Zealand Debt Management Office, an arm of the Treasury, said the interest rate had dropped following the fall in wholesale rates as had other bond investments.

"The interest rates are set at a slight margin below the wholesale rate and is based on the Government's cost of borrowing," Jeal said. "Wholesale rates are at historically low levels."

NZDMO was conservative about changing its rates and did not alter them every time the market went up or down, she said.

Jeal did not believe there would be a further drop soon.

The amount raised so far is a tiny fraction of the overall costs to the Government but there was never an expectation that it would play a major part in paying for the Government's costs, Jeal said. "There was no target amount."

"It is simply an opportunity for New Zealanders to contribute to funding that was specifically earmarked for Christchurch but still get a return on their investment."

So far investors have predominantly been those putting in less than $50,000 and more than $100,000.

The minimum investment is $1000.

Jeal said some of the money had been reinvested from the Government's other Kiwi Bonds which existed before the Earthquake Kiwi Bond.

Retail investment in government bonds had declined in the past few years.

Jeal said investors had flocked to the safety of government bonds when the finance companies collapsed but when the banks were covered under the guarantee they had moved to the higher bank deposit rates.