Business Irish

Tuesday 19 September 2017

Ireland borrows over €5bn on first day back in bond markets

Donal O'Donovan

Donal O'Donovan

Noonan hails 'significant step' towards country regaining economic sovereignty and avoiding second EU bailout

Ireland borrowed more than €5bn from global money managers last night in a stunning return to the bond markets.

It's the first time the country has been able to borrow long-term debt, outside the EU/IMF bailout, since September 2010.

The deal is seen as the most significant indication yet that Ireland can escape a second bailout -- by fully funding itself through the normal debt markets by the end of next year.

"This is a significant step for Ireland in regaining our economic sovereignty," Finance Minister Michael Noonan said.

The scale of last night's surprise deal marks a dramatic turnaround after that two-year borrowing 'drought'.

Insiders say around 60pc of the bonds were sold to investors from abroad. The rest have gone to banks, insurers and pension funds in Ireland.

The successful bond deal reflects investors' belief that Ireland is on course for an economic recovery. By lending money now they have massively boosted the chances of a smooth exit from the EU/IMF at the end of next year.

The National Treasury Management Agency (NTMA) raised €4.19bn by selling new Government bonds due to be repaid in 2017 and 2020.

It also convinced investors who are due to be repaid €1.04bn over the next two years to swap their bonds for longer term loans.

With €500m of short-term debt already raised earlier in the month, it means Ireland has raised €5.7bn in a matter of weeks.

Traders said last night's deal was "stunning" with the amount of cash raised far exceeding even the most optimistic estimate. "Ireland returned to the markets in style," said Donal O'Mahony, a bond trader at Davy Stockbrokers.

"It's a stunning deal that significantly improves the chances that Ireland will not need a second bailout," said Ryan McGrath of Dolmen Stockbrokers.

The Government paid interest of 5.9pc to borrow for five years and 6.1pc to borrow for eight years with the deals.

That is well above the 3.5pc it pays to borrow from the eurozone rescue funds, but the higher interest was needed to tempt investors back after a two-year absence.

Yesterday's deal means Ireland was able to borrow in the markets more cheaply than Italy or Spain, which are not in formal bailout programs.

The head of the NTMA, John Corrigan, said it means the €8.2bn repayment that the Government is due to make at the start of 2014 is no longer a major financial headache for the country.

"The NTMA has now covered a significant proportion of the €8.2bn which, up until now, has been seen as a challenging 'funding cliff'," he said.

The deal will also make it easier for bailed-out banks to follow the Government back to more normal borrowing on the money markets, the top official at the Department of Finance, John Moran, said.

The timing of the deal surprised many, coming as markets wind down for the traditionally slow August period.

However, investors have been ever more optimistic about the Irish 'story' since European leaders agreed in June that Ireland had taken on too big a burden by bailing-out bust banks, and agreed that the rescue funds will take over some of the costs.

The terms of that deal have yet to be hammered out -- but falling borrowing costs for Ireland mean investors have effectively priced it, believing the national finances are set to become more sustainable as a result.

That positive momentum got a boost when ECB President Mario Draghi pledged to do "whatever was necessary" to protect the eurozone just hours after the NTMA offered its new bonds for sale.

As markets rallied in response to the comments, more and more investors poured in to the Irish bond sale.

Irish Independent

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