Tender date seen as good Budget pointer

Press, 27 July 1988, Page 35

Tender date seen as good Budget pointer

PA Wellington Speculation is growing on money markets that a $3OO million government bond tender on AUgust 1 — just four days after the Budget — points to positive news in the Budget. The speculation is based on a belief that the Government would not hit the market for so much money so soon after the Budgel: if it were not confident rates would resume their earlier decline.

Bond dealers say the market is becoming more confident the Budget will contain measures that will push interest rates lower, such as a financial deficit — that is before asset sales are accounted for — somewhat lower than the $1.3 billion to $1.4 billion widely expected. The speculation has grown despite a recognition in the market that there are valid reasons aside from the Budget for holding a tender of

this size at such a time. Reserve Bank money markets chief manager, Mr Mike Walsh, said timing of the tender was determined by choice of a suitable settlement date and a tender day two to three weeks ahead when the markets are flush with money. The tender has been timed for a Monday, rather than the traditional Thursday, because the earlier Thursday is Budget day, and the following Thursday would have placed the settlement period too close to the next tender, due on August 29.

.Bond dealers also acknowledge that the Government may be interested in clearing its borrowing requirements early so as to leave room in the market for substantial S.O.E. borrowing later in the year.

And a further factor in determining the dates of tenders may have been the Reserve Bank’s wish to en-

sure a highly liquid market in its relatively new stock maturing in November, 1993, as quickly as possible. For all this, dealers said the market is becoming more bullish about the Budget because of positive, though vague, statements by Cabinet Ministers in recent weeks. As one dealer put it, the Budget could be the Minister of Finance, Mr Douglas’s response to the bad news of unemployment and recession. November, 1993, bond yields fell in trading yesterday morning to 12.83 per cent, down on the 12.9 per cent levels traded in the last week. However, some of the fall may also have been related to a sharp drop in shortend rates, with cash rates falling to 14.75 per cent from 15.42 per cent on Monday, and nearly 19 per cent on Friday. Rates on 90-day bank bills also fell below 15 per cent for the first time in a week.