Timing, as they say is everything, but there is a certain irony in the confluence of events in New Zealand at the end of last week. On Thursday, the New Zealand Debt Management Office announced a record NZ$1 billion bond tender, with a record low yield of 4.45 per cent per annum being achieved on the 12-year bond offered. (The NZDMO also sold two-year and four-year bonds.) A recent US investor roadshow, headed by NZDMO's treasurer, Phil Coombes, appears to explain the substantial investor demand for New Zealand government debt.One can imagine the "excitement" felt by those US sovereign bond investors, who were only too pleased to hear about an investment opportunity that did not involve a European sovereign. Then they learnt, just a day after making their investment in safe, far away New Zealand, that two rating agencies had lowered their credit ratings on the country without warning. In the early hours of Friday morning, Australian time, Fitch Ratings announced it lowered the long term foreign currency issuer default rating assigned to New Zealand to AA from AA+, and the local currency equivalent to AA+ from AAA.This is the first rating downgrade, by any rating agency, that New Zealand has suffered in 13 years. Standard & Poor's followed just hours later with the same rating changes and rationale.Local currency ratings apply to commitments denominated in New Zealand dollars. Foreign currency ratings apply to foreign currency commitments, such as US dollar bonds, if these were to be issued by the New Zealand government. So, those US sovereign bond investors who thought they had bought AAA-rated bonds, at a record low yield, on Thursday, found on Friday that their bonds were now rated AA+ by Fitch and by S&P. Moody's Investors Service still assigns Aaa local currency ratings to New Zealand.Fitch attributes the downgrade to concerns over New Zealand's high external debt, high household indebtedness, slow economic growth and the risk that the government will be unable to return to budget surplus in 2014/15. Fitch sees New Zealand's high external debt levels as a key vulnerability. These stood at 70 per cent of GDP in June.   Household indebtedness is running at 150 per cent of household disposable income (Australia's is 157 per cent) and any lowering of this level would almost certainly result in a slowing of economic growth as household consumption would be cut. Real economic growth has averaged only 0.7 per cent per annum over the last five years, and any slowing of the economy or unexpected increase in recovery costs from the Christchurch earthquakes will make it difficult for the government to return to budget surplus by 2014/15 as planned.Completing the confluence of ironic events, the Reserve Bank of New Zealand released its September 2011 Bulletin on Friday morning. The second article in the Bulletin reports on a policy forum, sponsored by the New Zealand Treasury, the Reserve Bank of New Zealand and Victoria University of Wellington, on New Zealand's macroeconomic imbalances. The forum recognised that chief among