NZDM printed NZ$3 billion (US$1.8 billion) in the syndication of its May 2034 green bond and had added a further NZ$1.1 billion by tender as at the end of June 2023. Early attempts to trade the line have been challenging experiences, investors say. Iain Cox, Australasian head of fixed interest and cash at ANZ Investments, says a March trade produced a 10 basis point bid-to-bid differential.

Cox suggests the situation is unlikely to improve unless the green-bond line gains volume. According to NZDM, there is NZ$9.3 billion in its eligible expenditure pool out to the 2025/26 budget. In the context of NZDM’s growing funding task and increasing nominal lines, Cox says the green bond may struggle to grow. 

“The 2033 line just increased to NZ$12 billion from about NZ$7 billion,” he points out. “Because of the increased government funding forecasts, we expect other bonds to get bigger and more liquid. For this reason, the green bond is always going to sit behind the other lines in liquidity because it cannot reach the same scale.”

However, Fergus McDonald, head of bonds and currency at Nikko Asset Management, thinks liquidity – or lack thereof – is not the only factor to consider when thinking about green bonds. In general, he says, having this form of supply is beneficial for the market even if liquidity struggles in the short term.

“In theory, it attracts specialist bond funds – particularly those that are green-oriented,” McDonald says. “This brings more funding opportunities. Liquidity comes and goes, but in the big picture sovereign green bonds is a positive development for the New Zealand market.”

Nonsovereign supply will also help liquidity develop, though there are challenges here too. Kāinga Ora – Homes and Communities was until 2022 a substantial issuer of social and sustainability bonds. Its programme has been absorbed by NZDM, and while this should in theory provide the sovereign with assets for its own labelled programme, taking full advantage would require an update to allow social assets to be included.