Auctioning of a $150 million government bond issue yesterday prompted oversubscriptions in the near and longer term of three bond tranches, but only one of the tranches was accepted.
The Government periodically issues up to two bond tranches per month to raise money for mainly infrastructure-related spending, including roading, schools and health, with mainly banks and institutions buying the bonds but having to on-sell them themselves, generally around the weighted average of the range of prices.
There have been eight bond issues of between three and five tranches each between October and December this year.
The National-led Government has signalled an increased spending on infrastructure, under deputy leader Bill English - who is Minister of Infrastructure in the new portfolio - in part to boost the effects of recession.
ABN Amro Craigs broker Peter McIntyre expected infrastructure spending would increase hugely during the next three years.
He was surprised the 2015 tranches did not attract as much attention and were relatively "poor", noting that the longer- and shorter-term interest rates offered better rates There had been large domestic bond issues from the trading banks and corporates with strong S&P ratings, which had been "soaking up cash at present", while international money was staying closer to home.
"The Government is going to have to offer more attractive interest rates because of the size of its increased bond programme, which is required for the planned increase spend on infrastructure," Mr McIntyre said.
While the Government had moved to guarantee trading bank deposits up to $1 million - and some finance sector organisations were similarly guaranteed - with the Reserve Bank's cutting of the interest-setting official cash rate, the higher rates traditionally offered by the finance sector were also falling.
Mr McIntyre said the government bond attraction, although at lower rates, was because government debt was AAA rated.
The Labour budget predicted $3.4 billion for infrastructure spending, The new Government expected a $600 million increase to $4 billion for 2008-09.
In 2009-10, that was expected to rise to $6 billion; 2010-11 to $9.1 billion, and in 2011-12 up to $9.2 billion, Mr McIntyre said.
Yesterday, the first tranche of $50 million of bonds, maturing in 2013, attracted $85 million in bids, with $60 million accepted, at a weighted average yield of 4.61%.
The 2017 $50 million tranche attracted $85 million but was not accepted at 5.09%.
The 2015 $50 million tranche attracted only $35 million in bids as the yield was lower than tranches on either side and all bids were rejected.
In October, the Government cancelled a $4 billion bond issue because of continued global sharemarket volatility, citing it as "prudent" to defer until conditions settled.
At the time, government agency the New Zealand Debt Management Office had about $18 million on issue in five bond tranches.
