New Zealand Government Debt Market Outlook...Terms of trade supportive Source: The Treasury, HYEFU...

New Zealand GovernmentDebt Market OutlookJanuary 2019

New Zealand Economic Outlook

Debt Management: Funding Strategy and Announcements

New Zealand Government: Fiscal Outlook

Overview

2

Economic Outlook

Summary of forecasts

Source: The Treasury, HYEFU 2018

4

Executive summary table

2018 2019 2020 2021 2022 2023

Actual Forecast Forecast Forecast Forecast Forecast

Economic

Real GDP (production basis, annual average % change) 2.7 2.9 3.1 2.7 2.5 2.3

Real GDP per capita (production basis, annual average % change) 0.7 1.1 1.5 1.4 1.2 1.2

Unemployment rate (annual average, %) 4.5 4.1 4.0 4.0 4.0 4.1

CPI inflation (annual average % change) 1.5 2.0 1.8 2.0 2.0 2.0

Current account balance (% of GDP) -3.4 -3.5 -3.6 -3.6 -3.6 -3.7

Fiscal (% of GDP)

Core Crown tax revenue 27.9 28.1 28.2 28.5 28.8 28.9

Core Crown expenses 28.0 29.5 28.7 28.8 28.4 28.3

Total Crown Operating balance before gains and losses 1.9 0.6 1.3 1.5 2.2 2.3

Core Crown residual cash 0.5 -1.7 -0.8 -0.3 0.3 0.8

Net core Crown debt 20.0 20.9 20.7 20.1 19.0 17.4

Net worth attributable to the Crown 45.1 44.5 44.5 45.0 46.3 48.0

Year ended 30 June

Growth remains solid


-2.5

0.0

2.5

5.0

Jun-05 Jun-08 Jun-11 Jun-14 Jun-17 Jun-20 Jun-23

Quarterly

Quarterly % change (RHS) Annual average % change

%

Forecast

Real GDP growth

Terms of trade supportive


6

900

1000

1100

1200

1300


Quarterly

Index (2009/10=1000)

Forecast

House prices and net migration


-40

-20

0

20

40

60

80

-10

-5

0

5

10

15

20


Th

ou

san

ds

Quarterly

House prices Net migration (RHS)

Annual average % change

Forecast

Number (000)

Business confidence a risk

Source: The Treasury, HYEFU 2018 8

60

70

80

90

100

110

120

130

140

-80

-60

-40

-20

0

20

40

60

Dec-04 Dec-06 Dec-08 Dec-10 Dec-12 Dec-14 Dec-16 Dec-18

IndexNet %

General business outlook Own activity outlook Consumer confidence

A positive output gap


9

-4

-2

0

2

4

0

2

4

6

8


Quarterly

Unemployment rate Output gap (RHS)

% of labour force % of potential GDP

Forecast

No urgency to raise OCR


10

0

1

2

3

4

5

6

7

8

9

0

1

2

3

4

5

6

Jun-02 Jun-05 Jun-08 Jun-11 Jun-14 Jun-17 Jun-20 Jun-23

CPI inflation 90-day interest rate (RHS)

Annual % Change %

Forecast

Fiscal Outlook

Current Government is committed to prudent fiscal strategy with 5 Budget

Responsibility Rules:

• Deliver a sustainable operating surplus across an economic cycle.

• Reduce the level of net core Crown debt to 20 per cent of GDP within five years of taking office.

• Prioritise investments to address the long-term financial and sustainability challenges facing New Zealand.

• Take a prudent approach to ensure expenditure is phased, controlled and directed to maximise its benefits. The Government will maintain its expenditure to within the recent historical range of spending to GDP ratio.

• Ensure a progressive taxation system that is fair, balanced and promotes the long-term sustainability and productivity of the economy.

Budget Responsibility Rules

Source: Budget Policy Statement, HYEFU 2018

12


Operating surpluses sustained

13

-25

-20

-15

-10

-5

0

5

10

15

2009 2011 2013 2015 2017 2019 2021 2023

Year ending 30 JuneOBEGAL (after inter-segment eliminations)

Forecast

$billions


Capital spending impacts residual cash

14

-10

-5

0

5

10

15

2018 2019 2020 2021 2022 2023

$billions

Year ending 30 June

Operating Capital Residual cash


Net core Crown debt contained

15

0

4

8

12

16

20

24

28

32

0

10

20

30

40

50

60

70

80

2009 2011 2013 2015 2017 2019 2021 2023

$billions

Year ending 30 June

Net core Crown debt % of nominal GDP (RHS)

Forecast

% of GDP

Funding Strategy and Announcements

Source: The Treasury

Announcements at HYEFU

17

Forecasts – New Zealand Government Bonds and Treasury Bills

• Inflation-indexed bond issuance is expected to be around NZ$1 billion of the NZ$8 billion

2018/19 bond programme.

• There are plans to commence a repurchase programme of the 15 April 2020 nominal bond

before the 30 June 2019. Repurchase activities will be dependent on portfolio requirements

and market conditions.

• Forecast NZGBs on issue are consistent with the Government’s commitment to maintain

levels of NZGBs on issue at not less than 20 percent of GDP over time. This commitment

was taken into consideration when setting the forecast annual bond programme for the

2022/23 year.

Source: The Treasury18

0%

5%

10%

15%

20%

25%

30%

0

5

10

15

20

25

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

Annual bond issuance NZGBs as % GDP (rhs)

NZ$b

NZGBs – not less than 20% of GDP

0

2

4

6

8

10

12

14

16

18

0

10

20

30

40

50

60

70

2013 2014 2015 2016 2017 2018 2019

NZ$bNZ$b

Nominal Bonds Inflation-Indexed Bonds (RH) T-Bills (RH)

Forecast

IIBs remain important part of funding portfolio

19Source: The Treasury

A strategic approach to IIB issuance

20Source: The Treasury

0.0

0.5

1.0

1.5

2.0

2.5

3.0

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2012 2013 2014 2015 2016 2017 2018

%

Inflation-Indexed Bonds Issuance (RH)

Inflation Breakeven for IIB 20 Sep 2025

NZ$b

Syndication preferred for new bonds

21

IIBSep2025

NZGBApr

2020

NZGBApr

2027

NZGBApr

2033NZGBApr

2025

IIBSep2040

NZGBApr

2029

IIBSep2030

IIBSep2035

NZGBApr

2037

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

2012 2013 2014 2015 2016 2017 2018

NZ$b

Syndication volumes (calendar years)

Nominal Bonds Inflation-Indexed Bonds



Funding strategy priorities

The debt funding strategy aims to minimise the Crown’s borrowing costs over the long-term, while keeping risk at an appropriate level.

Implemented in a transparent, even-handed and consistent manner.

22


Changing funding needs

23

0

10

20

30

40

50

60

70

80

90

0

2

4

6

8

10

12

14

16

18

202

00

1

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

20

21

20

22

20

23

NZ$bNZ$b

Annual bond issuance - year ended JuneTotal Market Bonds on Issue (RHS)

Forecast


Structure of NZGB portfolio

24

0.0

2.0

4.0

6.0

8.0

10.0

12.0

Mar19

Apr20

May21

Apr23

Apr25

Sep25

Apr27

Apr29

Sep30

Apr33

Sep35

Apr37

Sep40

NZ$b


Evolution of portfolio structure

25

Maintaining diverse investor base

Source: Bloomberg, RBNZ

26

0

10

20

30

40

50

60

70

80

90

0

10

20

30

40

50

60

70

80

Dec 94 Dec 97 Dec 00 Dec 03 Dec 06 Dec 09 Dec 12 Dec 15 Dec 18

Resident holdings of NZGBs (NZ$b)Non-resident holdings of NZGBs (NZ$b)Non-resident holdings of NZGBs (%) (RH)

%NZ$b

Increase in proportion of resident holdings

Source: RBNZ

27

50

55

60

65

70

75

30

32

34

36

38

40

42

44

46

48

50

Jul 2015 Jan 2016 Jul 2016 Jan 2017 Jul 2017 Jan 2018 Jul 2018

%%

Inflation-Indexed Bonds Total (incl. T-Bills) (RH) Nominal Bonds (RH)

Non-resident proportional holdings of NZGS

Current snapshot: Holdings of NZGBs

Source: RBNZ

28

0.0

2.0

4.0

6.0

8.0

10.0

12.0

2019NB

2020NB

2021NB

2023NB

2025NB

2025IIB

2027NB

2029NB

2030IIB

2033NB

2035IIB

2037NB

2040IIB

NZ$bHoldings of New Zealand Government Bonds

December 2018

29

DisclaimerThis presentation has been prepared by the Treasury on behalf of the New Zealand Government and is for general information purposes only. By listening to the presentation, or reading the presentation materials, you acknowledge and agree to the contents of this disclaimer.To the maximum extent permitted by law, neither the Treasury nor the New Zealand Government makes any representation, recommendation or warranty, express or implied as to the accuracy, completeness or currency of any of the information in this presentation and accept no responsibility or liability therefore. Data are indicative and approximate only, and all information is subject to change. This presentation is intended as a snapshot view of New Zealand only, and the Treasury and the New Zealand Government have no obligation, and do not undertake or accept any responsibility or obligation, to update, expand or correct anything in this presentation or inform you of any matter arising or coming to their notice, after the date ofthis presentation, which may affect any matter referred to in this presentation. This presentation contains forward-looking statements including information regarding the Treasury’s future bond issuances and the New Zealand Government’s forecast fiscal and economic performance based on current information, estimates and forecasts. Those statements are subject to risks, uncertainties, and assumptions which are hard to predict or anticipate, andtherefore actual outcomes and performance may differ materially from the statements. Any opinions expressed in this presentation reflect the judgement of the Treasury as the date hereof, and do not bind the Treasury nor the New Zealand Government.This presentation is not a product disclosure statement, disclosure document or other offer document under New Zealand law or any other law. This presentation is not, and does not constitute financial advice. All reasonable care has been taken in relation to the preparation and collation of this presentation. Except for statutory liability which may not be excluded, no person, including the Treasury or any person mentioned in this presentation accepts responsibility for any loss or damage howsoever occurring resulting from the use or reliance on this presentation by any person. Past performance is not indicativeof future performance and no guarantee or future rights are implied or given. Nothing in this presentation is an offer to sell, or solicitation of an offer to purchase, any securities. This presentation must not be relied upon by any person for making any investment decision and will not form part of any investment contract. The information provided in this presentation is not investment advice and does not take into account the investment objectives, financial situation or particular needs (including financial and taxation issues) of any particular investor. Any person considering in investing in New Zealand Government securities must refer to any relevant offer documents and disclosures provided expressly in connection with those securities and should take their own independent financial and legal advice on their proposed investment. New Zealand Government securities have not been and will not be registered under the United States Securities Act of 1933 (U.S Securities Act) or the securities laws of any state or other jurisdiction of the United States. New Zealand Government securities may not be offered or sold, directly or indirectly, in the United States or to, or for the account or benefit of, any person in the United States except in transactions exempt from, or not subject to, the registration requirements of the U.S. Securities Act and any other applicable U.S. state securities laws. This presentation may not be copied, distributed, disclosed or used without the Treasury’s express written consent.

New Zealand Government Debt Market Outlook...Terms of trade supportive Source: The Treasury, HYEFU...

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