A chronicle of repurchase agreements (RP) and other paradoxical property ownership contracts - www.omo.co.nz


Sent by Email : 3 June 2003


Office of Hon Dr Michael Cullen
Minister of Finance
Parliament Buildings

Dear Minister

I was surprised to note that the following security sale was recorded by Intso's, The Australian Financial Markets Newsletter, in their most recent issue.
New Zealand sells A$400 million uridashi (26 May 2003)
Issuer Her Majesty the Queen in right of New Zealand
Sector Government
Issuer rating AA+/Aaa
Facility Fixed rate EMTN/Uridashi
Amount A$400 million
Launch date 23 May 2003
Maturity 12 June 2008
Set date 12 June 2003 
Coupon 4.3 per cent
Issue price 99.98
Lead(s) Daiwa SMBC
The offering period started 26 May and ends on 11 June.

When you replied by email, 28 January 2003, to my attached letter commenting, "...I guess this is a story that isn't fully told yet...", I never guessed you would engage the sovereign credit rating of New Zealand taxpayers to facilitate portfolio investment by Japanese investors for the benefit of Australian citizen's.

 I also never realised that, as the Queen's New Zealand subjects, we could be encumbered with the private credit default risk of our Australian counterpart's investment strategies.Given the recently exposed HIH and AMP debacles, the outlook is not hopeful.  

The purchase of AUD 400 million to complete this transaction coupled with any front running speculative excess, hardly bodes well for a weaker NZD, when these currencies have a 0.933 correlation coefficient against the USD.

 Under the terms of the Official Information Act 1992, would you please supply me with the swap, any credit default protection and any currency hedging details attached to this issue, and whether it is shelf registered, to facilitate further private issuance of this sort. Further more, how will the various exposures and liabilities be reflected in the Crown's accounts, at the RBNZ or otherwise.   

 Yours faithfully,  


Stephen L Hulme

No details were supplied in response to OIA request.  



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US Federal Reserve Reference Publications

"The market for repurchase agreements on US government securities is of vital importance to the New York Fed, and the whole Federal Reserve System, because it is where virtually all of our monetary policy operations are conducted."- Peter Fisher, Manager, System Open Market Account - 15 January 1997.

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Repurchase Agreements with Negative Interest Rates - FRBNY - A primer detailing how short sales of Treasury securities can lead to protracted RP fails and consequently negative rates to address capital requirement issues.

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