NZ Treasury sends bond market a positive surprise with reduced borrowing plan
The Treasury has delivered the financial markets a positive surprise with a bigger-than-expected cut in its borrowing requirement over the next few years, reflecting better-than-forecast tax take.
The Treasury, in conjunction with the Pre-election Economic and Fiscal Update 2026, said it had reduced the government bond (NZGB) by $15 billion across the five-year forecast period compared to the Budget Economic and Fiscal Update 2026 (BEFU), reflecting reduced forecast cash requirements.
The forecast 2026/27 NZGB programme has been reduced to $30b, $4b lower than that published at the May Budget.
The forecast programmes for 2027/28 and 2028/29 have also been revised down by $4b, while the 2029/30 NZGB programme has been decreased by $3b.
In the bond market, the 10-year government bond yield eased slightly to 5.13% as world bond yields have been steadily marching higher, led by US Treasuries.
Westpac senior economist Darren Gibbs said the market had generally expected the bond tender programme to be unchanged.
“Clearly tax revenue is coming in stronger than expected,” Gibbs told the Herald.
“We haven’t seen any tax data since May but obviously the Treasury’s seen it, so they’ve recognised that and they’ve brought that into their forecasts, particularly for the near term.
“Relative to the Budget, nominal GDP was 1.6% higher in the June quarter than had been expected, and that just basically flows through into tax.”
Gibbs said forecasts further out had to be viewed “with a large grain of salt”.
He noted the update was finalised in August when yields were lower than they are today.
“Risks associated with the economic outlook and potential political change means that a clear picture of the medium-term fiscal outlook may not emerge until Budget 2027,” he said.
ASB economists said today’s figures were considerably stronger than expected and look to have depicted a glass-half-full view of the revenue outlook.
“Despite the lower debt profile than Budget, net public debt at $230b by 2031 will still be $172b higher than in 2019,” the bank said.
“There is still the need to return to budget surpluses so that fiscal buffers can be rebuilt.”
The global environment was considerably more challenging.
“New Zealand faces significant longer-term fiscal challenges posed by population ageing, climate change and infrastructure requirements,” ASB said.
“Generous fiscal pledges that are not fiscally sustainable will have consequences.”
Jamie Gray is an Auckland-based journalist, covering the financial markets, the primary sector and energy. He joined the Herald in 2011.
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