{"id":432780,"date":"2026-05-18T03:19:18","date_gmt":"2026-05-18T03:19:18","guid":{"rendered":"https:\/\/www.newsbeep.com\/nz\/432780\/"},"modified":"2026-05-18T03:19:18","modified_gmt":"2026-05-18T03:19:18","slug":"nz-government-debt-costs-lift-as-bond-yields-push-higher","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/nz\/432780\/","title":{"rendered":"NZ Government debt costs lift as bond yields push higher"},"content":{"rendered":"\u201cThe outlook revision reflects our view that a substantial debt reduction is becoming more difficult to envisage, as fiscal consolidation has been delayed in the past few years,\u201d Fitch wrote at the time.<\/p>\n
New Zealand Government bond yields have been rising \u2013 key 10-year bonds now trade at around 4.7%, from just over 4% last October.<\/p>\n
Government bond yields are lower than their corporate equivalent, and lower still than home mortgage rates.<\/p>\n
Matt Logan, portfolio manager, credit, at Fisher Funds, said New Zealand was not alone with its stretched bond market.<\/p>\n
\u201cEvery Government is trying to spend more on infrastructure, so that\u2019s one impulse.<\/p>\n
\u201cAs a result, basically every G7 country is running a fiscal deficit,\u201d he said.<\/p>\n
New Zealand\u2019s fiscal deficit runs at about 3% of GDP \u2013 lower than in France (5.1%), Britain (4.3%), and the US (6%).<\/p>\n
Logan said fiscal deficits here and around the world were creating a \u201ctidal wave\u201d of government bond issuance.<\/p>\n
\u201cIf you\u2019re spending more than you earn, then you\u2019re going to have to borrow some money to make up for it.<\/p>\n
\u201cAnd, and that\u2019s what basically every major Government is doing, which in and of itself isn\u2019t a bad thing.<\/p>\n
\u201cBut if we\u2019re all doing it at the same time, then that\u2019s tricky.\u201d<\/p>\n
Then there is the demand side.<\/p>\n
\u201cIf the demand to buy those bonds outpaces supply, then it\u2019s fine.<\/p>\n
\u201cBut I think there\u2019s a natural limit on just how much bond purchasing can happen.\u201d<\/p>\n
That was particularly the case for long-end bonds \u2013 10-, 20- and 30-year paper.<\/p>\n
The natural home for those longer bonds would be an insurer or an asset manager, but particularly insurance and pension funds.<\/p>\n
That\u2019s when the demographics come in.<\/p>\n
\u201cThe baby boomer generation is getting older, and so their natural appetite [for bonds] is still there, but their demand to buy bonds is not increasing at the same rate as Governments\u2019 appetite to borrow,\u201d Logan said.<\/p>\n
\u201cSo you\u2019re just seeing that cost of borrowing is going up, which is a pretty difficult medium- to long-term trend to get away from.\u201d<\/p>\n
New Zealand government borrowing, like most countries\u2019, exploded higher in the Covid period.<\/p>\n
The Covid era involved quantitative easing \u2013 the issuing of vast amounts of government bonds, bought by market participants and sold to the Reserve Bank.<\/p>\n
Now the reverse \u2013 quantitative tightening – is happening.<\/p>\n
The Reserve Bank is selling the bonds back to Treasury, which is having to issue new bonds to fund the purchases, further adding to the supply-demand dynamic and putting upward pressure on yields.<\/p>\n
Logan noted Fitch\u2019s action did not mean New Zealand was out of step with the rest of the world.<\/p>\n
\u201cThe budget has to balance sooner or later, and so we kind of … at the more fiscally responsible end of the party, but we\u2019re all in the same party.\u201d<\/p>\n
The majority (60%) of NZ government bonds are owned offshore, so the local market was at the whims of global bond dynamics.<\/p>\n
\u201cSo when the US rate goes up in the morning, it doesn\u2019t really matter what\u2019s happening in New Zealand, our yields are going to go up as well.\u201d<\/p>\n
Logan said that with the New Zealand economy being so weak, the country was stuck in \u201ca bit of a negative feedback loop\u201d.<\/p>\n
Added to the interest rate outlook was the likelihood that the Reserve Bank will have to start raising its Official Cash Rate (OCR) to stave off inflation.<\/p>\n
Economists expect the rate, currently at 2.25%, to hit 3% by the year\u2019s end.<\/p>\n
The Reserve Bank\u2019s next OCR review is due on May 27 \u2013 a day before the Government\u2019s Budget.<\/p>\n
\u201cI think there are … signs of stress in the market, which is healthy because that\u2019s how financial markets should work,\u201d Logan said.<\/p>\n
\u201cThere should be stress on both sides, for the buyer and seller.\u201d<\/p>\n
But if the stress continues?<\/p>\n
\u201cIt\u2019s a little bit like having a bad heart. If you\u2019re stressed one day, that\u2019s okay. But if you\u2019re stressed for the next 10 years, it\u2019s not good for your heart.<\/p>\n
\u201cAnd I think that\u2019s the concern for bond markets.\u201d<\/p>\n
Jamie Gray is an Auckland-based journalist, covering the financial markets, the primary sector and energy. He joined the Herald in 2011.<\/p>\n
Stay ahead with the latest market moves, corporate updates, and economic insights by subscribing to our Business newsletter<\/a> \u2013 your essential weekly round-up of all the business news you need.<\/p>\n","protected":false},"excerpt":{"rendered":"\u201cThe outlook revision reflects our view that a substantial debt reduction is becoming more difficult to envisage, as…\n","protected":false},"author":2,"featured_media":432781,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[665,806,6867,138,802,5399,84587,266,18325,48879,13484,1943,8461,111,139,69,3109,142398,15400,801,146251,221561,102,377,102241,80],"class_list":["post-432780","post","type-post","status-publish","format-standard","has-post-thumbnail","category-business","tag-around","tag-as","tag-bond","tag-business","tag-costs","tag-debt","tag-demands","tag-government","tag-grapple","tag-greater","tag-higher","tag-inflation","tag-lift","tag-new-zealand","tag-newzealand","tag-nz","tag-public","tag-purse","tag-push","tag-rising","tag-servicing","tag-sovereigns","tag-with","tag-world","tag-yields","tag-zealand"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/432780","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/comments?post=432780"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/432780\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media\/432781"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media?parent=432780"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/categories?post=432780"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/tags?post=432780"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}