A new instrument is to be introduced to the top-grade NZ fixed income market, broadening its base from NZ Government bonds.

The debut issue of local and regional authority bonds by a single borrowing agent, the Local Government Funding Agency (LGFA), will occur via tender on Wednesday this week, in an offering of $50m 2015 and $250m 2017 maturities.

The bonds will have similar characteristics to NZ Government Bonds - a AA+ rating from Standard & Poor's and Fitch, and identical coupons and payment dates to the existing NZGB lines. Issuance will be handled by the NZ Debt Management Office, a branch of the NZ Treasury.

There is no government guarantee, rather a joint and several guarantee from shareholders in the LGFA (there were 18 authorities at last count, including the largest - Auckland Council, and more expected to join over time).

Up to $1bn of issuance is expected each year during the first five years.

Initial pricing forecasts are difficult to construct given the lack of precedent.

LGFA’s are not listed and trade over-the-counter like State Owned Enterprise debt, senior bank bonds and government stock. There is an expected secondary market for transactions <$1m.

Minimums  are $10,000 and multiples thereafter of $1,000