Sunday 22 October 2017

NTMA set to test the bond market with 10-year issue

Deal will be through 'syndicate' of banks to ensure a smooth passage

John Corrigan, CEO of the National Treasury Managment Agency
John Corrigan, CEO of the National Treasury Managment Agency
Donal O'Donovan

Donal O'Donovan

THE Government is expected to brave the markets by issuing a 10-year bond for the first time since the bailout either today or tomorrow.

The National Treasury Management Agency (NTMA) said last night that a new bond, due to be repaid in 2023, will be issued in the "near future".

The NTMA, headed up by chief executive John Corrigan, has been issuing bonds with gradually lengthening maturities since July last year when the first bonds since the bailout were placed with investors.

A 10-year bond is the latest step in the country's return to financing itself on the markets instead of through European Union and International Monetary Fund rescue loans.

Longer-term bonds are riskier than short-term IOUs for investors. Being able to borrow over 10 years is therefore regarded as a sign that investors regard a country as credit-worthy.

The move has been well flagged in advance, including by the Finance Minister Michael Noonan who has said the long-term debt deal would be done by June at the latest.

However, expectations a deal would be announced this week sank after Taoiseach Enda Kenny said in London that he was not expecting a bond deal.

That is now expected to take place as early as today. The new bond is being issued through a "syndicate" of international banks rather than at an auction.

It's a less risky way to place debt in the markets, because the NTMA has already ensured that lenders are prepared to hold the IOUs.

The NTMA has mandated Barclays, Danske Bank, Davy, Goldman Sachs, HSBC and Nomura to handle the deal.

They in turn will sell on portions of the new bond to other investors.

The cautious approach is in keeping with NTMA practice since it made an initial move to return to borrowing from private sector lenders last summer.

The NTMA has not said how much it is planning to raise. The Government has no pressing financial needs that cannot be met from current resources, including bailout loans.

However, investors prefer to buy into larger deals in the €2.5bn to €5bn range because they tend to trade better over time.

Yields

Irish bond yields traded flat in recent days with the yield, or interest rate on Irish eight-year bonds unchanged at 3.67pc.

It is the best indicator of the likely interest that investors will seek for the new longer-term 10-year paper, and suggests a borrowing cost in the region of 4pc.

Mr Noonan said in February that the Government was planning to sell a 10-year bond in the first half of this year as part of its campaign to qualify for the ECB bond-buying programme.

The cost of borrowing has fallen steadily over the past 12 months as borrowing costs everywhere have plummeted and confidence in Ireland's capacity to borrow has returned.

Irish borrowing costs are now below the equivalent levels of Spanish and Italian government bonds, two fellow eurozone strugglers which have avoided sovereign bailouts.

Recent sales of bonds maturing anywhere from three months to five years have drawn significant interest from overseas. Sources at the NTMA are particularly pleased with the level of interest from Scandinavian wealth funds.

Irish Independent

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