Growing investor nervousness about Europe's creditworthiness has boosted the Government's debt credentials.
New Zealand 10 year Government bond yields have fallen below 4%, to a near record low of 3.82%, meaning it's now cheaper for the Crown to borrow.
Harbour Asset Management's head of fixed income Christian Hawkesby says while it's partly due to domestic factors, the main driver is fading confidence in European bond markets.
He says domestically the November 2011 Government bond has matured and that's meant a lot of money has been put to work reinvesting in the Government bond market which has pushed down Government yields.
Mr Hawkesby says global investors have increasingly been viewing the New Zealand Government bond market as a place to park their funds, which has pushed the 10 year Government bond yield down to what's believed to be an all-time low.
Germany and America are seen as safe havens, with bond yields at or below 2%, compared with the rising cost of borrowing in countries like Italy at 7% and Spain at 6.5%.
Mr Hawkesby says New Zealand is moving in tandem with Germany and the US, and yields could fall further.
He says the global outlook will drive yields and the worrying situation in countries like Italy and Spain will lead to global bond yields in core countries falling, which will lead to New Zealand Government bond yields falling as well.
Mr Hawkesby says the other factor is Reserve Bank interest rates.
He says around a month ago the Reserve Bank was talking about further Official Cash Rate increases as the economy recovered from the Christchurch earthquakes, but now markets are pricing in a small chance that the Reserve Bank actually cuts rates, primarily due to the global outlook.
Mr Hawkesby says the most worrying aspect for Europe is the widening yield spread between Germany and the rest of Europe, which indicates it's the only country investors trust.
He says that creates a situation where if Europe needs to raise more funds to create a rescue fund then they need to come from Germany.