New Zealand Government Debt Market Outlook January 2019 Overview - - PowerPoint PPT Presentation

New Zealand Government Debt Market Outlook

January 2019

New Zealand Economic Outlook Debt Management: Funding Strategy and Announcements New Zealand Government: Fiscal Outlook

Overview

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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

Source: The Treasury, HYEFU 2018

5

• 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

Source: The Treasury, HYEFU 2018

6

900 1000 1100 1200 1300 Jun-05 Jun-08 Jun-11 Jun-14 Jun-17 Jun-20 Jun-23 Quarterly Index (2009/10=1000) Forecast

House prices and net migration

Source: The Treasury, HYEFU 2018

7

• 40
• 20

20 40 60 80

• 10
• 5

5 10 15 20 Jun-05 Jun-08 Jun-11 Jun-14 Jun-17 Jun-20 Jun-23 Quarterly House prices Net migration (RHS) Annual average % change Forecast Number (000)

Business confidence a risk

Source: The Treasury, HYEFU 2018

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60 70 80 90 100 110 120 130 140

• 80
• 60
• 40
• 20

20 40 60 Dec-04 Dec-06 Dec-08 Dec-10 Dec-12 Dec-14 Dec-16 Dec-18 Index Net % General business outlook Own activity outlook Consumer confidence

A positive output gap

Source: The Treasury, HYEFU 2018

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• 4
• 2

2 4 2 4 6 8 Jun-05 Jun-08 Jun-11 Jun-14 Jun-17 Jun-20 Jun-23 Quarterly Unemployment rate Output gap (RHS) % of labour force % of potential GDP Forecast

No urgency to raise OCR

Source: The Treasury, HYEFU 2018

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1 2 3 4 5 6 7 8 9 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

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Source: The Treasury, HYEFU 2018

Operating surpluses sustained

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• 25
• 20
• 15
• 10
• 5

5 10 15 2009 2011 2013 2015 2017 2019 2021 2023 Year ending 30 June

OBEGAL (after inter-segment eliminations)

Forecast $billions

Source: The Treasury, HYEFU 2018

Capital spending impacts residual cash

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• 10
• 5

5 10 15 2018 2019 2020 2021 2022 2023 $billions Year ending 30 June Operating Capital Residual cash

Source: The Treasury, HYEFU 2018

Net core Crown debt contained

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4 8 12 16 20 24 28 32 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

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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 Treasury

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0% 5% 10% 15% 20% 25% 30% 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

2 4 6 8 10 12 14 16 18 10 20 30 40 50 60 70 2013 2014 2015 2016 2017 2018 2019 NZ$b NZ$b Nominal Bonds Inflation-Indexed Bonds (RH) T-Bills (RH) Forecast

IIBs remain important part of funding portfolio

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Source: The Treasury

A strategic approach to IIB issuance

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Source: 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

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IIB Sep 2025 NZGB Apr 2020 NZGB Apr 2027 NZGB Apr 2033 NZGB Apr 2025 IIB Sep 2040 NZGB Apr 2029 IIB Sep 2030 IIB Sep 2035 NZGB Apr 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

Source: The Treasury

Source: The Treasury

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.

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Source: The Treasury

Changing funding needs

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10 20 30 40 50 60 70 80 90 2 4 6 8 10 12 14 16 18 20

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

NZ$b NZ$b Annual bond issuance - year ended June Total Market Bonds on Issue (RHS)

Forecast

Source: The Treasury

Structure of NZGB portfolio

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0.0 2.0 4.0 6.0 8.0 10.0 12.0 Mar 19 Apr 20 May 21 Apr 23 Apr 25 Sep 25 Apr 27 Apr 29 Sep 30 Apr 33 Sep 35 Apr 37 Sep 40 NZ$b

Source: The Treasury

Evolution of portfolio structure

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Maintaining diverse investor base

Source: Bloomberg, RBNZ

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10 20 30 40 50 60 70 80 90 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

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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

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0.0 2.0 4.0 6.0 8.0 10.0 12.0

2019 NB 2020 NB 2021 NB 2023 NB 2025 NB 2025 IIB 2027 NB 2029 NB 2030 IIB 2033 NB 2035 IIB 2037 NB 2040 IIB

NZ$b Holdings of New Zealand Government Bonds December 2018

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Disclaimer

This 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 of this 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, and

therefore 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

• r 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 indicative

• f 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.