Inflation-proof bonds grow in popularity

Press, 12 November 1981, Page 27

Inflation-proof bonds grow in popularity

Wellington reporter A new series of inflationadjusted Government bonds, improving the old ones which had already attracted a total investment of $341.9 million until November 6. will be offered to the public on November 18. The new bonds were announced by the Minister of Finance (Mr Muldoon) on October 30. Inflation-adjusted bonds were first issued by the Government in October. 1977. They were slow to attract attention, but have become much more popular in the last two years. Up to March 31. 1978. they attracted a total investment of 56.7 M; a further SBM in 1978-79; 542.3. M in 1979-80; SI4BM in 1980-81; and $137.3M in slightly more than seven months so far this financial year. Since October. 1977. SII.BM has been redeemed. Only individuals can invest in inflation-adjusted bonds.

On November 6. 1981. there were 76.500 holding bonds, averaging $4300 each. Until November. 1978. bond holders could only invest $lOOO a year, but this was increased to $5OOO a year with a maximum total allowable holding of $lO,OOO. On October 30. 1981. Mr Muldoon eliminated the annual maximum investment limit and raised the maximum total investment to $20,000. Changes in the conditions have contributed significantly to the rapid increase in investment in the last two years, according to the chief accountant of the Reserve Bank. Mr R. J. Lang. Because most of the funds invested was recent money they had not yet attracted large premiums. At March 31. 1981. when investment stood at $204.6M. it had attracted premiums worth only about S22M. he said. But the rapid increases in investment would lift this

figure considerably by the end of the current financial year. The other major change announced by Mr Muldoon was that people under 60 who had invested their money for less than five years could now take it out at a month’s notice, but would get no premium. When the bonds were introduced. they were for a period of five years or longer, unless the investor was over 60 years of age. or was using the money to buy a first house, farm or fishing boat. These provisions still apply unless the investor wants to withdraw without being paid a premium. Mr Lang said the inflationadjusted bonds were still not much of an investment for anyone under 60 years, unless they were sure they would not need their money for five years or were contemplating buying a first house, farm or fishing boat. Mr Muldoon also announced the issue of premium stock, and this will also open on November 18. The new premium stock will attract a coupon rate of 12 per cent a year. A premium rate of four per cent after two years and 10 per cent after four years will also be offered. This premium stock will mature four years after the date of investment, while early redemption will- be available on two weeks notice, after four weeks from the date of application. There will be a maximum holding of $250,000 for the new premium stock, and the premiums will be taxable.