Thursday 19 October 2017

Government raises over €5bn in return to bond markets

Michael Noonan
Michael Noonan

THE Government has raised over €5bn in the bond markets today in a stunning return to the markets after a two year drought.

The National Treasury Management Agency raised over €4bn of new bonds and convinced more international investors to swap bonds due to be paid in the next two years for longer term loans.

Investors committed a total of €5.23bn into longer-dated bonds maturing in 2017 and 2020.

Of this, some €4.19bn was new money for the purchase of the two longer-term bonds on offer - a new 5 year bond maturing in October 2017 and an existing bond maturing in October 2020.

A further €1.04bn was for the exchange of their holdings of the shorter-dated 2013 and 2014 bonds into the 2017 and 2020 bonds.

The State paid interest of 5.9pc to borrow for five years and 6.1pc to borrow for eight years.

It's more than is paid under the terms of the bailout, but the higher interest was needed to tempt investors back after a two year absence.

The fund-raising came as yields on Spanish and Italian bonds are increasing with the cost of borrowing for Spain up over 7pc.

In addtion, funding from the EU/IMF/ECB troika is scheduled to end for Ireland next year.

Speaking today, NTMA Chief Executive John Corrigan said: “We are very pleased with the success of today’s transaction, particularly the fact that investors committed more than €4bn of new money to our first long-term issuance since September 2010.

"This marks a very significant step for Ireland on the way to full bond market access. As a result of today’s transaction, the NTMA has now covered a significant proportion of the €8.2bn bond maturing in January 2014 which up until now has been seen as a challenging 'funding cliff.”

Taoiseach Enda Kenny said it was particularly notable that the new bonds were long-term.

"It’s a measure of the progress we are making in emerging from the programme that we are in and it’s particularly important that these are long term papers that are involved here,” he said.

Minister for Finance Michael Noonan said the move, which surprised market watchers and analysts, was no surprise to him.

“There were a lot of experts who said we couldn’t do it," he said.

He added the success of the auction showed that investors were likely to have factored in a deal on Ireland's bank debt in the future.

The auction took place this afternoon in the first such move since September 2010.

The move comes as the cost of Irish borrowing has fallen over recent months while yields for the likes of Spain and Italy have increased.

The issuance, although a surprise, was designed to take the pressure off the funding cliff that Ireland faces in 2014.

Ireland currently has about €6bn of bonds maturing in 2013 and €8.2bn of bonds maturing in January 2014, according to Bloomberg data.

Speaking at the MacGill Summer School, John Moran, secretary general at the Department of Finance, described the move as brave.

“Getting out of our difficulties requires us to take brave actions and I would consider that today’s action was, I hope, a wise, but nonetheless brave action in the face of other countries having difficulty,” Mr Moran said.

The NTMA successfully raised €500m in an auction of three-month T-bills earlier this month at a yield of 1.8pc.

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