Kiwi Bond

Definition

Kiwi Bond is a type of financial instrument issued by the New Zealand government, designed for individual investors. These bonds are denominated in New Zealand dollars and offer fixed interest rates for a predefined term, typically varying between six months and four years. Kiwi Bonds provide low-risk investment options for those looking to invest in the New Zealand economy while supporting government funding initiatives.

Phonetic

The phonetic pronunciation of the keyword “Kiwi Bond” is: Kē-wē Bä-nd (IPA: /’ki.wi bɒnd/)

Key Takeaways

1. Kiwi Bond is a fixed interest, low-risk investment product issued by the New Zealand Government.
2. These bonds are available to individual investors, charities, and certain non-profit organizations.
3. Investing in Kiwi Bonds may provide a predictable and stable stream of income for investors, and they help fund the New Zealand Government’s public spending initiatives.

Importance

The term Kiwi Bond is important in the world of business and finance because it represents a secure and stable investment option issued by the New Zealand government. These bonds provide an opportunity for individual investors, both domestic and overseas, to contribute to the country’s economic growth while receiving a steady stream of fixed interest payments at predetermined intervals. Kiwi Bonds therefore play a vital role in generating capital for public projects, supporting development and fiscal sustainability, and promoting investor confidence in the nation’s financial market.

Explanation

Kiwi Bonds serve as an essential instrument in the financial market landscape of New Zealand, fulfilling a crucial purpose in offering domestic investors a stable and secure avenue for investment. These government-issued, fixed-interest bonds are denominated in New Zealand dollars and primarily target individual investors who reside within the country. The main intent of Kiwi Bonds is to foster a reliable financial relationship between the government and private investors, subsequently enhancing mutual trust, promoting economic growth, and providing the government with a valuable source of funding to support national development projects and public services. From an investor’s perspective, Kiwi Bonds are particularly attractive due to their low-risk nature and the assurance of attractive returns, given that these securities are backed by the New Zealand government. With a variety of maturity options to choose from, such as three months, six months, and one or two years, these bonds cater to a diverse range of investor preferences and risk appetites. The interest generated from Kiwi Bonds is usually exempt from non-resident withholding tax and approved issuer levy, making them more lucrative for foreign investors. Consequently, Kiwi Bonds not only help instill confidence in the financial market, but they also encourage the flow of capital into the country, thereby contributing positively towards sustaining the economy.

Examples

Kiwi Bonds are New Zealand government bonds that are issued for retail investors. These bonds are denominated in New Zealand Dollars (NZD) and are a low-risk investment option available to both domestic and international investors. Here are three real-world examples: 1. June 2018 Issuance: In June 2018, the New Zealand Debt Management Office (NZDMO) issued a new four-year Kiwi Bond with a maturity date of June 15, 2022. It had a fixed interest rate of 2.75% per annum, paid quarterly, making it an attractive investment option for investors seeking exposure to New Zealand government debt. 2. KiwiSaver funds: The NZDMO issues Kiwi Bonds regularly for retail investors. In fact, some of the KiwiSaver funds, the national retirement saving scheme in New Zealand, invest in Kiwi Bonds as part of their low-risk investment strategy. This allows individual investors to gain exposure to safe, government-backed investment options, while also diversifying their portfolio. 3. Attracting overseas investors: In 2017, as the global interest in New Zealand bonds grew, overseas investors increased their holdings. The New Zealand government anticipated this demand for NZD assets and issued new Kiwi Bonds to attract offshore investors. The bonds offered relatively higher yields compared to other global government bonds and stability due to New Zealand’s strong credit rating. This example showcases the strength and attractiveness of Kiwi Bonds as an investment option for international investors looking to diversify their portfolios and invest in stable, low-risk opportunities.

Frequently Asked Questions(FAQ)

Related Finance Terms

• Fixed Interest Rate
• Debt Security
• New Zealand Government
• NZD Currency
• Investment Term

Sources for More Information

• Investopedia
• Shmoop
• CNBC
• Corporate Finance Institute