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RBNZ Intends To Gradually Dispose of All its Bond Holdings in 5 Years

In: Finance, Forex

New Zealand’s central bank is to begin selling the bonds acquired during its quantitative easing program and intends to gradually dispose of all its holdings over the next five years.

Starting next month, the Reserve Bank will sell bonds back to the Treasury Department’s debt management office at a rate of NZ$5 billion ($3.2 billion) per June year in order of maturity date, beginning with the longest maturity, it said in a statement Thursday.

Sales will continue in a “gradual and predictable manner” until holdings have reduced to zero, which is expected to be in mid-2027. Shorter-maturity bonds will mature without reinvestment or sales.

New Zealand bonds fell across the curve after the RBNZ’s statement today, with the yield on 10-year debt hitting its highest level since June 2015.

The RBNZ bought NZ$53.5 billion of mostly government bonds during its so-called Large Scale Asset Purchase program, which was a key feature of its response to the pandemic.

It ceased purchases in July last year, with just over half of the NZ$100 billion program completed, and began raising interest rates in October as it became clear the economy was overheating.

The RBNZ said it reserves the right to change the rate of sales or halt them should conditions change, but does not expect such changes to be common.

It said any impact on net bond supply has been incorporated into New Zealand Debt Management’s issuance guidance provided in Budget 2022, and bonds that repurchased bonds will be retired.

“The Reserve Bank and NZDM will continue to collaborate closely to ensure the efficient functioning of the New Zealand government bond market,” the RBNZ said.

In a Memorandum of Understanding with NZDM, the RBNZ said it intends to sell NZ$415 million of bonds in each of the months from July through May, and the remaining NZ$435 million will occur in June each year. Sales will be executed on the 15th calendar day of each month.

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