Thursday 29 September 2016

Political impasse fails to dampen demand for bonds

Published 15/04/2016 | 02:30

The latest financing means the State has raised €4.75bn of its stated target to borrow between €6bn and €10bn on the bond markets this year. Photo: Reuters
The latest financing means the State has raised €4.75bn of its stated target to borrow between €6bn and €10bn on the bond markets this year. Photo: Reuters

The State's borrowing costs fell to a record low yesterday as the political impasse at home and risks associated with a UK exit from the European Union failed to dent investor confidence.

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Despite the lack of a new Irish administration bond investors snapped up €750m of 10-year government bonds at an interest rate of just 0.817pc at an auction yesterday.

It's the cheapest long term debt ever raised by the State.

The bond auction itself was heavily oversubscribed. The National Treasury Management Agency (NTMA) said investors placed orders worth €1.774bn yesterday, 2.4 times more than was on offer.

The auction results show investor appetite is actually up since the General Election seven weeks ago that resulted in a hung Dáil.

"Demand was strong," said Ryan McGrath, head of fixed-income strategy at Cantor Fitzgerald. "Fears around the domestic political situation and the looming Brexit vote failed to materialise."

The latest financing means the State has raised €4.75bn of its stated target to borrow between €6bn and €10bn on the bond markets this year.

If there are any doubts in the market over domestic political uncertainty they are likely to have been masked by the European Central Bank (ECB) quantitative-easing programme. The ECB programme means buyers of Irish bonds are in effect assured of a secondary buyer in Frankfurt if they want, or need, to sell-on their investment.

Growth also remains unusually strong. Combined with confidence that political uncertainty won't trigger major policy changes, it means investors continue to lend at record low prices.

The spread, or premium, demanded from Irish bonds compared to super safe German debt has narrowed since the election.

"Ireland can afford a brief spell of political uncertainty," said Alan McQuaid, chief economist at Merrion Capital in Dublin.

"It is no great surprise that market reaction to the result has been muted, with no serious negative fallout at this stage from either the Irish stock market or Irish government bonds."

Irish Independent

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