Drop in interest on Govt stock

Press, 22 June 1985, Page 21

Drop in interest on Govt stock

PA Wellington The Government yesterday paid a top rate of 19.80 per cent to fill its $3OO million June tender of Government stock, down from 22.15 per cent at last month’s tender. The tender was seen by the money market as the first major post-budget test of longterm interest rates. Average rates accepted were about 2 per cent below those of the May tender. However, they were in line with recent rates in the secondary market, which fell back last week in anticipation of the Budget. Dealers bid $1127 million for the $3OO million of stock offered. A high total bid of this nature almost certainly contained several overseas bids. T'lpfailc — March 1987 stock: Offered, SSOM; bid, SI9BM; successful yields, 19.30 to 19.80 per cent; weighted average, 19.596 per cent. The May average was 21.849 per cent. March 1991 stock: Offered, SISOM; bid, $642M; successful yields, 17.47 to 18.18 per cent; weighted average, 18.153 per cent. The May average was 20.391 per cent for 1990 stock. April 1995 stock: Offered, $100M; bid, S2B7M; successful yields, 17.23 to 17.39 per cent; weighted average, 17.332 per cent. The May average was 19.175 per cent. The Government hailed the drop as a “strong vote of confidence” in its economic policies, reports Michael Hannah from Wellington. However, the Prime Minister, Mr Lange, warned that people should not expect dramatic overnight reductions in mortgage interest rates.' “These will come down gradually over the next year or so,” he said.

The rates were up slightly on rates accepted earlier this week on the secondary market, which had expected the drop before the Budget deficit of $1286M was announced last week.

However, the huge increase in bids received for the tender added some weight to the claim that overseas confidence in the economy was reflected in the tender.

Most of the stock went to merchant banks and sharebrokers.

The renewed off-shore interest came in the nick of time, however, as trading banks failed to gain any stock yesterday. The banks are holding on to funds in anticipation of the big September tax take, which they will have to finance for the first time without the aid of Reserve Bank injections of funds through the compensatory deposits scheme. Mr Lange said the fall in stock tender rates yesterday reflected confidence in the Government’s commitment to restrain spending, its moves to reduce the Budget deficit and its firm monetary policy.

“The Government is on course, as these results show. Our determination to turn this economy around is resolute,” he said.

The Opposition spokesman on finance, Mr Bill Birch, however, said the "small decline” in rates would not convince families. He maintained that interest rates for home owners, farmers and business people had increased again this week.

The Bankers’ Association was delighted with the “fairly significant” falls in interest rates, said the executive director, Mr Max Bradford. The falls would put downward pressure generally on interest rates.