What Are Kiwi Bonds?
A Kiwi Bond is a type of fixed income security that is offered and backed by the government of New Zealand. These bonds provide investors with a fixed interest rate for a specified period, ranging from six months to four years, and can be purchased in amounts as low as NZ$1,000 up to a maximum of NZ$500,000. They are exclusively available to New Zealand residents.
Key Takeaways
- Kiwi Bonds are government-backed securities available only to residents of New Zealand.
- These bonds are denominated in NZ dollars and offer a fixed interest rate, paid quarterly.
- Investors can choose bonds with maturity periods of six months, one year, two years, or four years.
- Minimum investment is NZ$1,000 and the maximum is NZ$500,000 per issue.
How Kiwi Bonds Work
The term “Kiwi Bonds” may sound whimsical, but it has substantial significance grounded in New Zealand’s culture and tradition. New Zealanders, often affectionately called Kiwis, have embraced this secure form of investment. Supported fully by the New Zealand government, Kiwi Bonds provide a high degree of security, reducing exposure to risks of default compared to bank-issued or corporate bonds. However, these bonds typically offer lower interest rates.
Kiwi Bonds are issued in New Zealand dollars (NZD) and come with maturity periods of six months, one year, two years, or four years. Bonds reach maturity upon their specified end date or can be redeemed beforehand by the bondholder.
Interest
Interest for Kiwi Bonds is paid at a fixed rate, on a quarterly basis in arrears. Rates are periodically adjusted by the New Zealand Debt Management Office, based on domestic wholesale rates’ moving averages. As of February 2021, six-month and one-year bonds offered a return rate of 0.25%, while two-year and four-year bonds offered a 0.50% return.
Investment statements and application forms can be obtained from the New Zealand Debt Management Office Registry and information is accessible through domestic registered banks, investment firms, brokerage companies, chartered accountants, solicitors, and investment advisors.
Special Considerations
New Zealand limits who can purchase Kiwi Bonds to ensure they are only available to its residents. Foreign investors and New Zealand citizens residing abroad are ineligible to invest in these bonds.
Advantages and Disadvantages of Kiwi Bonds
Financial experts often highlight the numerous benefits offered by Kiwi Bonds. During times of global financial instability, New Zealand’s economy has maintained steady growth and stability. This reduced risk, combined with the trusted reputation of New Zealand’s central bank, makes Kiwi Bonds an appealing option for cautious investors.
Despite the security and guaranteed returns that Kiwi Bonds offer, there are some disadvantages. The primary downside is the relatively low rate of return. Investors seeking higher profits or who are willing to take on more risk might find better opportunities with other bonds, like those issued by banks or large corporations.
In summary, Kiwi Bonds represent a secure, government-backed investment option that is ideal for New Zealand residents looking for low-risk, albeit low-reward, fixed returns.
Related Terms: Fixed Income Security, Interest Rate, Default, Corporate Bonds, NZD.
References
- Te Tai Ōhanga The Treasury. “Kiwi Bonds”.
- Te Tai Ōhanga The Treasury. “Changes to Kiwi Bond Interest Rates”.
