BNZ to launch country’s first covered bond programme

The covered bonds, which provide investors an extra security on a pool of residential mortgages if the issuer defaults on a payment, were given triple-A ratings by Moody's Investors Services and Fitch Ratings after the issuance of the securities was given the all-clear by the Reserve Bank in its latest Financial Stability Report.

Jennifer Wu, a senior analyst at Moody's, told depositrates.co.nz that benefit of covered bonds is that the extra security can give an "uplift" in the potential rating, with the mortgage pool acting like a guarantee if the issuer defaults on repayments. She said it was exciting to see the securities launched in New Zealand, and it should attract new sources of funding for BNZ.

"There's a strong trigger in there to protect the quality of the pool or mortgages," Wu said. "The fact that it's the first issuance of the bond has everyone interested - it has to be as good as it can be."