- In an important development for the local market, we believe that New Zealand government bonds have qualified for the FTSE-Russell World Government Bond Index (WGBI), the primary government bond benchmark used by global investors.
- We will need to wait until late March for formal confirmation that New Zealand government bonds will join the index although we may receive provisional confirmation sometime this week. If we’re right that New Zealand government bonds have qualified, then they should officially join the index later this year, probably at the start of November.
- Industry estimates suggest around US$2.5 trillion in assets under management track the WGBI … even with a small index weight (we estimate around 0.2%), New Zealand government bonds’ inclusion in the WGBI is likely to generate substantial offshore inflows.
- This should benefit both the bond market (implying lower yields than otherwise) and the NZD.
BNZ’s caveat on the benefit:
- Of course, its likely to be very much a second-order factor compared to other drivers such as the OCR outlook, broader economic developments and trends in key global markets.
NZD/USD caught a tailwind off its lows earlier from the news on the proposed Biden-Putin summit.