Monday 29 December 2014

State pays 40pc less to borrow €2.5bn on markets

Published 09/01/2013 | 05:00

Finance Minister, Michael Noonan, and John Corrigan, Chief Executive, NTMA

THE Government paid more than 40pc less to borrow on the markets yesterday than it did when it issued identical bonds just six months ago.

The 3.32pc "yield" or interest rate paid to borrow €2.5bn from mostly international investors is 43pc below the rate paid in July, when the State made its first return to the bond markets after the two-year absence that led to the EU/IMF bailout.

It's a sign of the rapid rehabilitation of Ireland's reputation on the money markets, crucial if the country is to exit the current EU/IMF bailout on schedule at the end of the year.

Taoiseach Enda Kenny and Finance Minister Michael Noonan both welcomed the news.

"I see it as another sign of growing investor confidence in Ireland," Mr Kenny said during a visit to Bavaria in southern Germany. He is visiting the German state to attend the annual gathering of the Christian Social Union – which is the sister party of German Chancellor Angela Merkel's Christian Democratic Union.

Mr Kenny made the comments after the National Treasury Management Agency (NTMA), which manages debt for the State, raised €2.5bn of debt due to be repaid in five years on the bond market yesterday, paying a "yield" or interest rate to lenders of 3.32pc. That compared to an interest rate of 5.9pc last July.

In practical terms, yesterday's borrowing costs mean the annual interest bill to borrow €2.5bn is now €83m, down from €147.5m in July.

The money was raised through a so-called syndicated deal arranged by a group of international banks, rather than at an auction.

The borrowing rate on the markets now compares favourably to the rate of around 3.5pc that is charged to borrow from the European bailout fund. However, the bailout fund lends at that price over longer periods.

In the months before the 2010 bailout, Ireland was paying an average of 4.7pc to borrow.

The latest fundraising by the NTMA was done by increasing the size of a bond due to be repaid in 2017 – it has gone up by €2.5bn to €6.39bn.

The bond deal "tapped" or added to yesterday was initially created only last July, making it easy to compare investor demand and price. Investors offered to lend €7bn to the NTMA yesterday, helping drive down the cost of borrowing.

The State opted to borrow just €2.5bn of the cash on offer. It's a quarter of the total target the NTMA has set to borrow over the entire year.

Bailout

Further borrowing this year will probably be through bond auctions held every second month and at least one more "syndicated" deal.

Traders said there was good demand from traditional investors for the new Irish bonds.

"There was very strong demand from a lot of the big pension funds, asset managers and real money accounts. This isn't domestic accounts or hedge funds leading the charge, and that will be encouraging for the NTMA," said Owen Callan, a bond dealer at Danske Bank.

Foreign investors took 87pc of yesterday's deal. More than a third sold went to the UK, while 12pc went to Scandinavia. US and Asian investors shared less than 4pc. That suggests that US investor Michael Hasenstab's Franklin Templeton was not a big buyer yesterday.

US firm Franklin Templeton held around 10pc of the €85.3bn of Irish government bonds before yesterday's deal.

When bonds fall due: P 40

Irish Independent

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