New Zealand is seen as good as it gets when it comes to investing in Bonds and other interest yielding investments – NZ is quite simply regarded as the obvious destination if you are looking for High Quality combined with High Yield, the type of yields that are only offered on junk bonds overseas. Global demand for NZ bonds hit record levels in 2013, and this has continued throughout 2014.
Generally, a government bond is issued by a national government and is denominated in the country`s own currency. Bonds issued by national governments in foreign currencies are normally referred to as sovereign bonds. The yield required by investors to loan funds to governments reflects inflation expectations and the likelihood that the debt will be repaid. With NZ government treasuries, foreign ownership is heading towards 70%, hardly surprising considering this country’s Aaa/AA/AA credit rating (very high likelihood of repayment) and the significant yield NZ treasuries offer compared to overseas norms.
A quick comparison of Government Bond ten year yields (percentage per annum) for some similar credit rated countries displays the attraction of New Zealand for investors.
New Zealand 4.11 Oct-14
Euro Area 0.25 Oct-14
United Kingdom 2.40 Oct-14
United States 2.44 Oct-14
Back in July, when raising rates for the 4th straight meeting, NZ Reserve Bank Governor Graeme Wheeler stated that “New Zealand’s economy is expected to grow at an annual pace of 3.7 percent over 2014”, this expected growth rate was also reiterated in the more recent September meeting. This stellar growth rate compared to most of the OECD countries is a significant factor in New Zealand being one of the first countries in the OECD to embark on a tightening monetary policy. Hence the outlook for future bond and treasury issuances in New Zealand, in relation to yield, just keeps on improving.
Asian institutions such as Bank’s and Wealth Managers have particularly increased their interest in recent times, Asia’s economic growth is on track to make Asia home to the largest pool of private wealth in the world by 2017, and New Zealand issuances are featuring high on the list with regard a preferred destination for these yield hungry investors.
Of course a huge part of the attraction in New Zealand is not just the yield but also its financial safety and secure social and political environment- New Zealand is simply viewed as a safe haven for global investors funds. It is highly likely that Global investors will be seeking yield in New Zealand for many years to come.