Friday 30 September 2016

Ireland sells first century bond at rate of just 2.35pc

Gavin McLoughlin and Donal O'Donovan

Published 31/03/2016 | 02:30

Investec Ireland chief economist Philip O’Sullivan
Investec Ireland chief economist Philip O’Sullivan

Ireland has issued its first ever 100-year government bond, at the extraordinarily low interest rate of just 2.35pc.

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The National Treasury Management Agency (NTMA) announced yesterday that investors have bought €100m of the super-long term debt.

The low price is good for taxpayers but an indication that investors fear low inflation is now a long-term predicament for the Eurozone.

Typically, bond investors seek to beat, or at least match inflation when they invest in long term assets.

The NTMA issued the €100m note, maturing in 2116, at a yield of 2.35pc, and it was sold by private placement through Goldman Sachs International Bank and Nomura.

The deal came about as a result of a reverse enquiry - ie, the investor approached the NTMA looking to lend the money rather than the other way around.

It's the first private placement by the NTMA since the bailout, though that does not necessarily mean such a placement could not have come about before now.

Prior to this issue the longest-term Irish sovereign bond in circulation matured in 2045.

NTMA director of funding and debt management Frank O'Connor said the "ultra-long maturity is a significant first for Ireland and represents a big vote of confidence in Ireland as a sovereign issuer".

Owen Callan, a bond analyst at Cantor Fitzgerald Ireland, said the issuance was unusual in a Eurozone context.

"Certainly the headline rate of 2.35pc sounds very cheap, for the NTMA it's a great deal to fund for 100 years at that sort of level, and maybe this will encourage them to look at longer-dated issuance on a broader level now going forward," he said.

"The typical type of investor that would buy something this long-term would be a life insurance company, somebody with very long-dated liabilities.

"That's typically the only type of person who'd look that far into the future."

Investec Ireland chief economist Philip O'Sullivan, inset, also said the deal was unusual, but noted that Mexico has recently raised money via a 100-year bond.

"The amount of money raised by the NTMA is reasonably modest, so it doesn't particularly move the dial for it," O'Sullivan said.

"I think the yield is quite interesting, I think that's very attractive for 100-year money," he said. "At €100m outstanding it's not going to materially affect the funding position of the sovereign but nonetheless it is a vote of confidence in Ireland's ultra long-term prospects."

Meanwhile, a new report from Davy Stockbrokers has said Britain leaving the European Union would be unlikely to markedly hurt Ireland's economic recovery in the near term.

However, the report warned that a Brexit could negatively impact both Irish and British GDP in the long run.

"While severe trade disruption would only occur in the worst-case Brexit scenarios, the key risk for Ireland is that productivity and trend UK GDP growth are hurt over the long-term by an exit from the EU," the report said.

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