Budget 2021: NZ Treasury cuts bond issue forecast by just $10 billion

The Government has cut its bond tender programme by a total of $10 billion for the financial years out to 2025 – a much smaller-than-expected reduction than the market had expected.

The Treasury said it will issue $30b in bonds for the 2021/22 fiscal year, which was in line with the forecast published in last year’s fiscal update.

The forecast bond tender programmes for 2022/23 and 2023/24 years have been cut by $5b in each year, to $25b a year.

The 2020/21 and 2024/25 programmes are unchanged at $45b and $25b respectively, the Treasury said.

Over the forecast period, the Government will borrow $105b from the bond market, down from $115b estimated at last year’s update.

ANZ had expected the bond issuance to fall by $20b over the forecast period, and Westpac was looking at a $35b decline.

Westpac senior markets strategist Imre Speizer said the reduction was smaller than many had expected.

“The reason for all of this is that the Treasury’s economic forecasts, we think, are too pessimistic,” Speizer said.

The conservative economic outlook adopted by the Government would mean its operating balance would not improve by as much, which meant it would have less scope to reduce debt than it would have done otherwise, he said.

After the budget’s delivery at 2 pm, the New Zealand dollar was unchanged at about US71.68c while bond yields edged up by one or two basis points.

In the Budget, the Treasury said GDP was expected to rise from 2.9 per cent this year, to 4.4 per cent in 2023 and an extra 221,000 extra people are expected to be in employment over the next four years with unemployment expected to drop to 4.2 per cent by 2025.

The Treasury is, however, still expecting the Government to produce a deficit for each of the next six years, and then a minor surplus in 2027.

Ratings agency S&P Global Ratings said the budget confirmed that New Zealand is recovering quicker than most advanced economies.

“This is consistent with our expectations that the economic and fiscal shock will be temporary, though debt levels will remain elevated for some time,” S&P said.

“Given the pace of recovery, we believe the government’s credit metrics can withstand further negative shocks to the economy and its fiscal position at the current rating level,” the agency said.

S&P indreased New Zealand’s long-term foreign currency rating to ‘AA+’ from ‘AA’ in February.

“While the government is targeting additional spending on housing affordability, climate change, and welfare, we believe the general government deficit will narrow over the next few years,” S&P said.

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