Australian Bourse Sees Major Hurdles to List NZ Bond Futures

(Bloomberg) — Australia’s plan to re-list New Zealand government bond futures next year faces major challenges due to concerns about limited liquidity and lack of trading transparency, according to the nation’s securities exchange. 
The roadblocks mean re-listing the contracts in the first half of next year as initially planned is unrealistic and “2025 at this stage is probably quite challenged,” said Jennifer Eason, a senior product manager for rates at ASX Ltd. in Sydney. “Things would need to move and progress in a positive direction very quickly to hit that milestone.” 
New Zealand banks are reluctant to provide live and executable pricing feeds for the futures contracts at least partly to protect their own swaps businesses, Eason said in an interview. Meanwhile, the limited depth of the inter-dealer market makes it hard to guarantee investors can exit their positions easily, she said. 
Despite the challenges, Australia’s bourse is looking to re-introduce New Zealand government bond futures at some point to meet increasing hedging demand from global investors after the kiwi debt market was included in a key FTSE Russell index in 2022. Australia’s exchange operator de-listed the product five years ago due to lack of liquidity, meaning investors currently have to hedge using swaps. 
New Zealand’s banks are generally supportive of the re-listing of the futures as it would boost their market and give access to more sophisticated and accurate ways to hedge, even though it may impact their swaps businesses, Eason said.
Swaps are customized contracts traded in the over-the-counter market, while banks get commissions by matching the counterparties. Overseas investors currently own more than 60% of New Zealand’s outstanding government debt. 
“That’s the conundrum that we’ve got here,” Eason said. “It’s progress for a financial market, versus what we currently have, which is quite lucrative.” 
A survey conducted by ASX in November 2023 found 79% of respondents supported the re-listing of New Zealand government bond futures, believing that would help boost liquidity and enhance yield curve transparency of the nation’s debt market.
Eason expects the size of New Zealand’s treasury bond market to grow another 30% from September to NZ$220 billion ($132 billion) by 2028, helping to further underpin the attraction of futures. 
“I would love to think that at some point in the future this will happen,” Eason said of the potential re-listing. It’s just dependent on overcoming the hurdles “and seeing that up-tick in support,” she said.
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