Higher debt costs were inevitable after the two recent economic downgrades, but the Government was still receiving strong demand for its bonds, Craigs Investment Partners broker Chris Timms said yesterday.
Investors were prepared to pay more than $1 for a bond with a face value of $1, in some cases up to $1.03.
This week, the Debt Management Office, part of Treasury, received bids of $2.1 billion for $900 million worth of bonds, showing the bonds were still highly sought after, he said.
The Debt Management Office did not have to accept all bids.
Labour Party finance spokesman David Cunliffe yesterday said Kiwi taxpayers were paying a higher price for Prime Minister John Key and Finance Minister Bill English's mismanagement of the economy.
The cost of servicing government debt had risen sharply since the twin credit downgrade by Standard and Poor's, and Fitch.
Both men were blindsided by the downgrades but tried desperately to play down the significance in terms of the cost or borrowing, Mr Cunliffe said.
"Their comments lacked credibility then. They lack even more now."
Thursday's bond auction showed the cost of government borrowing had risen "sharply" since the double downgrade.
Since the downgrades, interest rates on new government bonds had risen by 0.2% for bonds maturing in 2015 and 0.4% for bonds maturing in 2023.
"With National planning to issue $35 billion in bonds in the next three years, an increase of 0.2% to 0.4% in interest rates will cost $100 million to $150 million extra per year."
The deficit of $18.4 billion built up by National would be even harder to manage, the cost of debt surging as a result of the credit downgrades, Mr Cunliffe said.
Mr Timms said the 2023 bond average had risen from an all-time low of 4.45% to 4.85%. Bond averages had also lifted off all-time lows in the United States.
Rates had risen around the world as the fears around the future of countries such as Greece and Italy deepened.
The yield on the 2015 bond of 3.48% was still "quite attractive".
"The cost of funding has increased with the credit downgrade but there is still good demand for the bonds."
At a glance
• Coupon: Interest rate stated on bond when first issued.
• Yield: Income return on an investment based on the investment cost - actual return on investment spent during the time period invested.
• This week, in the government tender, $500 million was issued in bonds maturing on April 15, 2015. The coupon was set at 6%, the successful yield was 3.48%.
Investors were therefore prepared to pay $564 million for $500 million worth of bonds. The Government only has to return the $500 million, not the $564 million.
