What Exactly Is a Kiwi Bond?

In finance, the phrase "Kiwi Bond" refers to a kind of fixed-income security that is issued and guaranteed by the New Zealand government. Kiwi Bonds offer investors with a fixed rate of interest for a specified length of time ranging from six months to four years. They are offered at flexible pricing starting from as low as NZ$1,000 going as high up to NZ$500,000. One must be a resident of New Zealand to be eligible to buy these assets.

Key Points Briefly

  • A kiwi bond is a kind of security that is sold directly to the public and can only be purchased by the individuals who are residents of New Zealand.

  • Kiwi bonds are designated in New Zealand dollars and have a set interest rate that is paid quarterly in arrears. They are issued by the New Zealand government.

  • Bonds have maturation dates that ranges from six months, one year, two years, and even go up to four years, respectively.

  • Bonds have been priced flexibly to attract vast majority of investors and to suit every income size by pricing them between NZ$1,000 to NZ$500,000 per bond.

What Kiwi Bonds Are and How Do They Work?

The name of the Kiwi Bond is associated with the historic and cultural significance for New Zealand. While the name might sound odd at first for a financial instrument. People from New Zealand are also referred to by the nickname Kiwis. They have national football and cricket sporting team that are also referred to by the same name.

Kiwi Bonds would be highly attractive for the risk averse investor as they are issued by the Government and backed by a fixed rate of return. This reason attracts several investors to invest in Kiwi Bonds that would guarantee them a fixed rate of return on their investment. The biggest downside with such financial security is that, the returns would be marginal and lower compared to other assets.

The Government has set flexible maturity deadlines ranging from six months, one year to even four years. Therefore, individuals have a wide range of options to choose from when redeeming their bonds. The investment range has been set between NZ$1,000 to a maximum threshold of NZ$ 500,000.

Interest Rates for a New Zealand Government Bond

Bondholders get interest payments on a quarterly basis. The New Zealand Debt Management Office sets the interest rates for the country's debt. The following are the most current interest rates available as of July 2020 −

  • 0.25% per annually for the first six months

  • 0.25% each year for a period of one year

  • 0.50% per year for the first two years.

  • 0.50% each year for the first 4 years.

Bottom Line

Kiwi Bonds are safe and reliable way to invest money for a guaranteed return on investment with AA+ credit rating and flexible investment options provided by the New Zealand government. However, the rate of return is minimal when compared to other securities and there are no additional incentives for longer duration bonds.

Updated on: 28-Jul-2021


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