What are bonds?
Bonds are like IOUs used by a borrower to raise funds. They work in much the same way as a term deposit, offering a fixed interest rate over a set period, from six months to a decade and longer. Over the term of the bond’s life, the investor receives regular interest payments. Once the term period is over and the bonds reach maturity, the lender is paid back their initial investment.
However, unlike having money in a term deposit, where your money is locked up, many bonds can also be traded like shares.
Who can issue bonds?
Bonds can be issued by central and local governments, as well as by corporations. Bond issuers break down into four types:
- Central government: Treasury
- Government agencies: Housing New Zealand, NZ Post, etc
- Local government: Auckland Council, Christchurch Council, etc
- Corporate: ANZ, Contact Energy, Fletcher Building, Fonterra, SkyCity, etc
Trading bonds
As we mentioned above, many bonds can be bought and sold like traditional shares, through licensed sharebrokers and investment advisors. The NZ stock market’s NZX Debt Market is NZ’s primary market, with 146 bonds listed.
An important exception to the trading rule is NZ Government Kiwi Bonds, which has this caveat in their standard disclosure statement: “The Crown does not intend to quote these bonds on a market licensed in New Zealand and there is no other established market for trading them.”
Fixed returns
One of the positives about investing in a fixed-rate bond is that if you plan to hold it to maturity, you’ll know from the outset what your return will be. It’s just like putting money in a term-deposit.
Things only become more complicated if you sell your bond before maturity and the market has changed. As interest rates rise and fall, the price of bonds fluctuates along with it.
For example, if you buy a $1000 bond paying 10% pa on maturity after 1 year, you will make $100 on your investment. (Remember, as with all investments, there are risks involved, but we’ll come to this later.)
But if interest rates go up and new bonds come on the market offering a 15% return, the market price of your bond will drop, so whoever buys it still makes 15% on their investment. After all, why would they buy it for $1000 and only make 10%?
Alternatively, if interest rates drop to 5%, the market price of your bond will rise, to ensure whoever buys it still only makes the new rate of 5% on the bond’s maturity.
Pros and cons
As with all investing, buying bonds isn’t something that you should enter into without professional advice, especially if you’re going to buy and sell them. All investment involves risk, and working out bond yields is a very complicated process that involves the kind of equations that you’d expect to see on a NASA whiteboard.
However corporate bonds can offer better returns than term deposits, without the volatility associated with the stock market. Government bonds tend to be the safest of all. Given the stability of our government and its good credit rating, for those seeking an alternative to banks and term deposits Kiwi Bonds could be an option.
But with less risk comes fewer returns:
Kiwi Bonds
Current Kiwi Bond rates for subscriptions of $1000 – $500,000:
| Maturity | Rate |
| 6 months | 2.50% pa |
| 1 year | 2.50% pa |
| 2 years | 2.75% pa |
| 4 years | 3.25% pa |
Term deposits
Current average term-deposit rates on Canstar’s database:
| 6 months | 3.50% |
| 1 year | 3.56% |
| 2 years | 3.79% |
| 4 years | 4.12% |
As the above rates show, stability does come with a cost. But, as part of a wider investment portfolio, bonds are a serious consideration for the more conservative investor.
(Rates correct at 13/02/26).
About the author of this page
Bruce Pitchers is Canstar NZ’s Content Manager. An experienced finance reporter, he has three decades’ experience as a journalist and has worked for major media companies in Australia, the UK and NZ, including ACP, Are Media, Bauer Media Group, Fairfax, Pacific Magazines, News Corp and TVNZ. As a freelancer, he has +worked for The Australian Financial Review, the NZ Financial Markets Authority and major banks and investment companies on both sides of the Tasman.
In his role at Canstar, he has been a regular commentator in the NZ media, including on the Driven, Stuff and One Roof websites, the NZ Herald, Radio NZ, and Newstalk ZB.
Away from Canstar, Bruce creates puzzles for magazines and newspapers, including Woman’s Day and New Idea. He is also the co-author of the murder-mystery book 5 Minute Murder.
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