New Zealand Debt Management (NZDM) has set a $25 billion bond programme for 2019/20 - almost double that forecast in the middle of last month - to fund the Government's moves to prop up the economy for the Covid-19 pandemic.
About $8b has already been issued, leaving $17b of bonds to be issued over the next three months until the end of the Government's fiscal year on June 30.
It will be the biggest quarter for New Zealand government bond issuance and the annual figure will be the biggest on record.
NZDM, part of the Treasury, also left the door open to raise more.
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While the NZDM is set to substantially increase its bond issuance, the Reserve Bank has embarked down a path of buying back Government bonds, otherwise known as quantitative easing.
The bank last month said it would buy up to up to $30 billion of New Zealand government bonds, across a range of maturities, in the secondary market over the next 12 months.
The programme aims to provide further support to the economy, build confidence, and keep interest rates on government bonds low, the bank said then.
Westpac senior markets strategist Imre Speizer said bond yields rose on the news that a large amount of debt would soon hit the market.
"The market was expecting a big ramp up of issuance and we got it all right," Speizer said.
"It was bigger than the market was expecting," he said, adding longer dated bond yields rose by 11 basis points on the news.
"To varying degrees, there was an adverse reaction," Speizer said.
"The money printing and bond buying are going to be the story for quite a while."
The new bond issue forecast represents revised assessments of funding requirements because of additional fiscal impacts of Covid-19, NZDM said.
This was $12b higher than the forecast bond programme, updated on March 17.
"Due to the rapidly evolving Covid-19 situation, further updates may be required as new information becomes available," NZDM said.
"The current circumstances require a more flexible approach relative to established issuance practices."
The announcement prompted significant selling in the government bond market, prompting higher yields across the curve.
Yields for 2023 bonds rose by 8 basis points and 15 basis points for the 2029s. When bond prices fall, yields rise.
"The issuance planned by NZDM over this quarter is of an order of magnitude never before seen in New Zealand," Bank of NZ said.
Previously, the biggest year of issuance was at the tail end of the Global Financial Crisis - the 2010/11 fiscal year - when the total came to $19.5b.
Finance Minister Grant Robertson said yesterday New Zealand's ability "to go hard and go early" in the fight against Covid-19 has been underpinned by strong Government finances.
Treasury data showed that in the eight months to the end of February, net debt was $600m below forecast at 19.2 per cent of GDP, and the surplus of $1.4b was $100m above forecast.
Economists expect the debt to GDP proportion to blow out to 40 per cent as a result of measures to combat the economic impact of the pandemic.