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Strong demand expected for LG tender

Offshore participation in local government funding agency bonds is increasing, Westpac says.

Wednesday, April 2nd 2014, 6:00AM

The bank’s economists have issued a forecast for today’s tender, which they say they expect to be successful, reflecting secondary market performance since the last tender in February, increasing offshore participation and global appetite for credit products.

There will be $10m in 2019 bonds, $40m in 2012 bonds and $65 million in 2023 bonds offered.

This is the first time the 2023 bonds will be offered.

Westpac’s Imre Speizer said the average awarded rates for the 2019 and 2021 bonds would likely be close to the current secondary market levels of 60bp and 76bp above the corresponding NZGB yields.

“Forecasting the 2023 is trickier since there is no precedent. We assume a similar spread between 2021 and 2023 to that on the NZGB curve, i.e. 17bp. That puts the LGFA 2023 at 93bp above the corresponding NZGB. The new line and long maturity would normally require a yield premium, but in this case the small amount offered should act as a mitigant.”

The asset class debuted in 2012.  Speizer said demand should be strong for the tender as foreign interest increased and New Zealand credit spreads continued to contract.

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