Tuesday 25 April 2017

NTMA prepares bond sale as French borrowing costs spike

NTMA's Treasury Building
NTMA's Treasury Building

Gretchen Friemann and Abhinav Ramnarayan

THE National Treasury Management Agency plans to sell up to €1.25bn of bonds on Wednesday, taking the State within touching distance to the lower end of its borrowing target for 2017.

News of this latest bond auction by the Government came as French borrowing costs surged and investors fretted over the rise of far-left candidate Jean-Luc Mélenchon in polls before this month's presidential vote. His emergence has raised the possibility that he will square off against far-right leader Marine Le Pen in the election's decisive second round in May, making the final result unpredictable.

Despite the widening yield spread of French bonds over German paper, bond markets remain in relatively bullish mode. A recent debt auction by South Africa's government was six times over-subscribed despite the country suffering a credit-rating downgrade to junk status. This latest round of borrowing from the NTMA leaves the State close to the lower end of its €9bn to €13bn bond issuance target this year. The nation's debt-management agency has a track record of raising a larger volume of money in the first six months of the year but looming redemption payments have heightened expectations it will reach its issuance ceiling by the end of 2017.

This week's sale will follow the dual-tranche strategy deployed in February and March, reflecting investor preference for shorter and longer-dated paper. Investors will bid for between €1bn and €1.25bn of bonds split between six year and nine maturities at a coupon of 3.9per cent and 1 per cent rate respectively. However the yield will be set by demand and is expected to reflect current market rates for government paper.

Irish Independent

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