Wednesday 28 June 2017

State borrows €500m at the cheapest rate ever

Photo: Reuters
Photo: Reuters

Gretchen Friemann

Ireland issued a €500m tranche of Treasury Bills yesterday at a record negative yield, underscoring the continued dislocation of the Eurozone sovereign debt markets.

The National Treasury Management Agency (NTMA) attracted bids of €1.3bn, representing 2.66 times the amount on offer, even though the 12-month paper entails a guaranteed loss if investors hold the debt to maturity.

The record negative 0.43pc yield ranks as the cheapest rate ever generated for short-term Irish debt, and marks a 1 basis point decline on the negative .42pc yield on the December issuance of €500m Treasury Bills.

Barry Nangle, head of fixed income at Davy Stockbrokers, pointed out the negative yields reflect the aggressive policy of the European Central Bank (ECB) and argued that until its bond-buying programme, or quantitative easing, starts to taper, short-term euro-deonominated debt is likely to remain at sub-zero yields.

He said it was too difficult to predict a withdrawal of QE, adding that ECB president Mario Draghi is a "master of verbiage" and has "played the game well".

While Mr Nangle acknowledged the negative rates leave markets in unchartered territory, he stressed Ireland sits in the middle of the yield range for short term Eurozone sovereign debt with similar paper in France and Belgium yielding around minus .6opc.

"It's important for people to realise that Ireland is not an outlier, we are in the middle of the yield range", and argued the State's still considerable debt burden limits a deeper retreat in rates. Yet the higher price for Irish debt came amid a wave of optimism in global markets after the Fed raised rates in response to a strengthening domestic economy.

Irish Independent

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