The New Zealand Debt Management Office, which runs a NZD37.2 billion (USD14 billion) debt portfolio on behalf of the government, is looking to increase its use of cross-currency interest-rate swaps this year on the back of expanding its euro medium term note program, according to Phillip Anderson, treasurer in Wellington. "We'll borrow somewhere in the range of NZD500 million to NZD1 billion this year," said Anderson. Of the NZD37.2 billion debt portfolio, NZD7.9 billion is denominated in foreign currencies.
"This is a function of altering the profile of maturing debt," Anderson explained, noting that as a larger amount of outstanding debt matures this year than last, the office will up its euro medium term note program to roll the debt over. It will issue in foreign currencies and if necessary, swap into yen, U.S. dollars and euros, as New Zealand holds foreign exchange reserves in these currencies. Where required, the DMO will also adjust the interest-rate components to match the duration of its investment portfolio, which is comprised primarily of foreign sovereign debt. He declined to comment on specific foreign currencies it hopes to issue in for the coming months but noted that the office will look for arbitrage opportunities between currency pairings in order to reduce costs, for which it employs an in-house research team.
Typical issuing currencies are the G-3 but also sterling, Australian and Canadian dollars. If the DMO requires floating-rate U.S. dollars, it could issue U.S. dollar floating-rate notes, issue in fixed dollars and swap into synthetic floating, or issue in fixed sterling or euro and enter a cross-currency-interest rate swap. "It's a matter of looking at different possibilities and finding the most cost-effective method," said Anderson.
The DMO notched up NZD1.5 billion (notional) of swaps in 2001, and will likely be more active this year. Anderson declined to disclose specific counterparties for swap transactions but noted, "it's all the major players."
