Wish casting the New Zealand market
With so many moving parts, it is no surprise that New Zealand market participants list a range of factors as their most hoped-for local outcomes. How many will be delivered remains to be seen.
HELLERUP It would be nice if the basis swap moved! This is the main thing we would like to see.
FUJIMOTO I agree with Jens that it would be good to see movement in the basis swap. More generally, I think it has been great to see the New Zealand market evolve. The size of issuance has increased: we used to issue NZ$400-500 million (US$246.5-308.2 million) but in the last five years we have issued lines at NZ$1 billion or close to it.
We feel very positively about the New Zealand market, and we think there is potential for it to grow further. Part of this will come from NZDM [New Zealand Debt Management]’s growing funding task, which will increase the size of the market overall and add liquidity, which is crucial to investors.
I believe a policy being delivered without haircuts would be helpful for the New Zealand capital market. I understand the justification behind it, and the liquidity considerations. But a market like New Zealand could benefit from somewhat softer regulation in this respect.
BUTCHER I would like to see investors reward issuers of sustainable finance bonds. The reality is that there is a huge cost to us in bringing these instruments to market – including the time it takes, resources, the growing regulatory requirements and meeting investor expectations. Issuers are not getting financial benefit or recognition from the work they are putting in.
The reality is there is not much issuance in New Zealand, and I believe there is a problem with the amount of cost and obligation being placed on issuers in the public market for sustainable finance bonds.
BISHOP Our area of concern with green bonds is the rules about issuing them, as they become increasingly stringent. We have to think about how our supply of green assets could affect investors, especially if we potentially start to run out of them. We also want to know what other options are available and how investors will perceive them.
MARTIN Recently, investors have been quite vocal in enquiring about a futures market, which is something that has been discussed in New Zealand for a very long time and we can certainly see some benefits to.
Another recent development we are encouraged by is the increased offshore participation in Treasury bills, which have historically been heavily held domestically by a few bank names. Offshore participation is now up to 30 per cent, which is something we would like to see maintained or expanded.
CARTER The government increasing its funding programme has assisted the overall ‘New Zealand Inc’ story – notably the LGFA [New Zealand Local Government Funding Agency]. It certainly sounds like it will be an interesting few months, with a number of important themes set to evolve in the rates environment and also for the global political backdrop.
BILL With respect to the LPR [liquidity policy review], I believe a policy being delivered without haircuts would be helpful for the New Zealand capital market. We don’t have haircuts in most jurisdictions we issue in, other than Australia.
I understand the justification behind it, and the liquidity considerations. But a market like New Zealand, at the stage of development it is at, could benefit from somewhat softer regulation in this respect – to further enhance market participant diversity. This would ultimately benefit local portfolios’ credit exposure diversification and, likely, spread enhancement.
