Investors snap up $1b in Govt bonds

Australia and New Zealand government bond markets have enjoyed strong demand. Photo / Mark Mitchell

Investors hungry for New Zealand Government debt on Thursday made nearly three times as many bids for a record $1 billion bond offer by the Debt Management Office.

The office has been offering large amounts of Government bonds in response to demand.

The strong tender result was despite next month's Budget, which is widely expected to show a lot of red ink, and the threat of a credit rating downgrade from Standard and Poor's.

It followed closely on the heels of two other big tenders, on January 13 and March 24, of $950 million each.

Both tenders enjoyed a high bid-to-cover ratio - where the amount bid exceeds the amount offered.

Andrew Turner, head of portfolio management at the office, said that Thursday's offer was the biggest so far.

"We have been responding to demand for bonds, particularly over the last two or three months, so the larger tenders that we have had are just a reflection of the feedback from the market," Turner said.

The office offered $200 million of April 2013 bonds, with a coupon rate of 6.5 per cent, and $800 million of March 2019 bonds (5 per cent). Total bids came to $2.95 billion.

The weighted average yield for the April 2013 bonds was 3.51 per cent, with 5.61 per cent for the March 2019 bonds - on a par with those in the secondary government bond market, which also suggests a successful tender.

Thursday's bid-to-cover ratio was just under three times compared with the average over the past 12 months of 2.7 times.

Australia and New Zealand government bond markets have enjoyed strong demand, in part reflecting the difficulties of some European governments in raising funds.

Senior market strategist at Westpac Imre Speizer said: "Certainly, given the size of the tender, it was a very good performance."

Tender results never show the level of foreign interest in bond tenders, but the market's assumption was that it was high.

Speizer said there had been a trend of diversification away from the "old world" government bond markets of the US, UK, Europe and Japan towards "new world" markets of Australia, Canada and New Zealand.

"That dynamic is becoming more pronounced," he said.

The bond tender programme for 2010-11 has been revised up three times from the original $12.5 billion outlined in the last Budget.

The programme was increased to $13.5 billion on December 1 and expanded to $16.5 billion on April 12.