Smyth speculated on whether Housing New Zealand would have to offer a premium over bonds sold by the comparatively similar Local Government Funding Agency (LGFA), which also has an AA+ rating but has more liquidity, with $7.8b of bonds issued on behalf of local authorities.
Either way, HNZ can't borrow as cheaply as the government, based on recent LGFA sales.
In May the LGFA sold $50 million of 2.75 per cent April 2025 bonds at a weighted average yield of 3.42 per cent. The government sold $20m of the same maturity and coupon at a weighted average yield of 2.56 per cent.
"They will be well sought-after," said Fergus McDonald, head of bonds and currency at Nikko Asset Management New Zealand which won the INFINZ Bond Manager of the Year award for 2018.
McDonald said that as a fund manager he is happy to receive whatever extra yield premium HNZ bonds offer compared with government bonds but as a taxpayer, "I would argue the government should really fund them via the Debt Management Office (DMO which issues government bonds and bills). Why pay that extra margin to the funds I look after. It's all about the optics but it still comes from the public sector."
On $1b of bonds, a 1 per cent premium over government bond yields amounts to $10m, "which would fund 20-30 state houses," he said.
The DMO declined to comment on the pricing of HNZ's bonds. Budget 2018 includes funding for a package of 6,400 public houses the government plans to build over the next four years, including $234m of operating funding, the $2.9b HNZ is to borrow from third parties and a further $900m that HNZ is to find from its operations.
To allow HNZ to borrow more, the government increased the limit on HNZ's borrowing protocol to $3.05b from $1.08b. HNZ will issue bonds in its own right for the first time in about 20 years.
HNZ currently owns or manages 63,000 properties and in addition to its target of adding 6,400 homes over the next four years, it aims to renew about 75 per cent of the housing stock over the next 20 years.
BNZ's Smyth noted the plans to raise debt in its own name is "a break from the past; Housing New Zealand had previously borrowed from the NZDMO rather than issuing under its own name."
"Given the relative scarcity of high-quality domestic issuers in NZ and what is likely to be a healthy spread pick-up to the NZGB curve, we expect demand to be strong," Smyth said.
On May 17, Finance Minister Grant Robertson released Budget 2018 projecting growing budget surpluses on an operating balance before gains and losses basis.
Stronger-than-expected tax revenue driven by a sturdy pace of economic growth underpins the outlook and fiscal assumptions and the decision to axe $7.9b of the previous administration's planned tax cuts has meant Robertson can ramp up spending over the next four years while holding the increase in net core Crown debt to less than $7b.
