What is a 'Kiwi Bond'

A kiwi bond is a retail stock offered directly to the public and available only to New Zealand residents. These bonds are the main investment option available to individual investors in New Zealand. Application forms and investment statements are available from the New Zealand Debt Management Office (NZDMO) Registry, as well as some registered banks, NZX firms, NZX brokers, chartered accountant, solicitors, investment advisors and investment brokers. Because they are a government-backed financial instrument that offers a higher level of security, kiwi bonds generally offer an interest rate that is lower than that offered by banks.

BREAKING DOWN 'Kiwi Bond'

Kiwi bond may seem like an exotic and whimsical name for an investment security, but it actually makes sense when you consider the history and culture of the region where it originates.

New Zealanders are often referred to as Kiwis, which is viewed as a term of endearment. A kiwi is a bird that is native to the region. The country’s national rugby league team is also called the Kiwis.

Kiwi bonds are issued in denominations in New Zealand dollars, with a fixed interest rate that is paid quarterly in arrears. Kiwi bonds are redeemable on maturity or at the option of the bondholder. Kiwi bonds are issued in maturity terms of six-month, one-year, two-year and four-year maturities. The minimum investment is $1,000 New Zealand dollars, with a maximum investment of $500,000 on any single issue. Interest rates for Kiwi bonds are set periodically by the New Zealand Debt Management Office (NZDMO) based on moving averages of domestic wholesale rates.

Benefits of Kiwi Bonds

In recent years, financial experts and advisors have frequently touted the advantages of investing in kiwi bonds. These observers often painted kiwi bonds as a sort of “sleeper hit,” since they seemed to quietly fly under the radar of many investors, but offered attractive potential rewards to those investors savvy enough to appreciate their benefits.

While markets and national financial systems in other parts of the world grappled with an assortment of natural and economic disasters causing unpredictable fluctuations in investing activities, New Zealand’s economy remained stable and steady, quietly enjoying positive growth and few disruptions.

Their relatively low level of risk, combined with the fact that New Zealand has a central bank that seemed poised and able to cut interest rates when many other similar banking systems were stalled, created the perfect scenario for those seeking an appealing investment option. At least, for those investors observant enough to be paying attention.

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