A surge in demand from Japanese investors has boosted the overseas issue of New Zealand dollar-denominated bonds to their highest level in five years.
Total issuance of eurokiwi and Japanese uridashi bonds has been estimated as high as $4.7 billion this year, up from $2.2 billion last year.
"Specifically, this
has been a big year for issuance, relative to the past four," said Johnathan Bayley, a Westpac Institutional Bank senior currency strategist.
While the total had more than doubled, the pace of issuance had slowed since the peak of $1.1 billion in February, Bayley said.
"To the extent that we can draw conclusions the pace of issuance has slowed but overall volumes have been fairly constant between $350 and $400 million a month."
New Zealand dollar-denominated bonds aimed at Japanese retail investors (uridashi) totalled $1.8 billion this year, accounting for almost 40 per cent of total overseas issuance, Bayley said.
Trends in uridashi issuance are difficult to establish as issues are neither well documented nor publicised.
Uridashi and eurokiwi bonds are New Zealand dollar investments offered by foreign institutions, which give exposure to New Zealand interest rates.
The level of issuance of New Zealand dollar-denominated bonds has been cited as a factor in the 14 per cent appreciation of the kiwi this year.
National Bank of NZ senior economist Cameron Bagrie said overseas issues of New Zealand dollar bonds were off their peak but that volume remained "pretty respectable".
ANZ Bank's director of foreign exchange, John Body, said the market had been trying to call the death of uridashi flows for some time but issuance had held up well.
New Zealand's real interest rates are among the highest in the developed world, with the Reserve Bank of New Zealand's (RBNZ) official cash rate set at 5 per cent, 25 basis points higher than Australia's official rate.
Japanese interest rates are effectively zero, while the US Federal Reserve's benchmark rate is at a 45-year low of 1 per cent.
Economists expect the RBNZ to start raising rates in 2004 to stave off domestic inflationary pressures.
However, Body said, demand from Japanese investors for uridashis remained strong and was outpacing eurokiwi demand.
