NZ Credit Market Closing Rates Consultation - Proposal to move bond valuations from yield to clean-price
The New Zealand Financial Markets Association are consulting on a proposal to change the format of the Credit Market closing rates (NZNG) from yield to a clean price.
As New Zealand's Credit Markets have developed, the instruments being issued have become more complex. In particular, the advent of resettable bonds (without a call date) and the RBNZ's announcement in 2020 to not allow Tier 2 capital instruments to be called, until further notice, has resulted in unclear maturity dates or nonsensical implied yields to a call or reset due to an implicit and often incorrect assumption of a par price at that date. In addition to this, the potential for distressed credit may result in very high yields which don't represent a fair expected return. The NZFMA's Credit Market committee has been considering these issues and recently concluded that price-based closes present the best solution to the problem, as the clean price gives a value to the security without having to make assumptions around calls and resets.
This consultation discusses the establishment of clean price closing rates in New Zealand and the impacts this may have on end users of the data.
Submissions close at 5.00pm on Friday, 5 February 2021.
Should you have any initial questions or comments please email John Groom, Director Operations and Compliance, NZFMA.
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