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NTMA raises €1.25bn as State’s borrowing costs double in six months


National Treasury Management Agency headquarters on North Wall Quay in Dublin

National Treasury Management Agency headquarters on North Wall Quay in Dublin

National Treasury Management Agency headquarters on North Wall Quay in Dublin

The National Treasury Management Agency (NTMA) has raised €1.25bn in fresh funding in its second bond auction of the year this morning.

But the State’s borrowing costs have doubled since August as bond markets now reflect rapid central bank rate interest rate increases that have pushed up the cost of funding.

The scheduled transaction brought the State’s external funding up to more than half of its estimated requirement for the year of €7bn-€11bn after just two deals.

It follows the NTMA’s issuance of €3.5bn of debt through the syndicated sale of 20-year green bond in January, bringing total debt funding for the year to €4.75bn.

The offering of two benchmark bonds, maturing in 2032 and 2037, attracted bids of nearly €3.5bn, meaning appetite from investors was strong.

But pricing, at 3.13pc and 3.37pc, was expensive compared to issuance in recent years, when low European Central Bank rates dragged government bond yields lower. Ireland’s weighted average debt yield is just 1.5pc, according to the NTMA.

The pricing of this most recent issuance is in line with Ireland’s 10-year yield of 3.14pc and slightly above German bunds, at 2.99pc. It also fully reflects the ECB’s main refinancing of 3pc. 

The relatively small amounts raised in this year’s first two transactions reflect the very strong funding position of the State, which continues to run a budgetary surplus.

Gross revenue at the end of February stood at €14.8bn, up 8.5pc on the same period last year when exceptional factors were stripped out, according to the Department of Finance.

That figure was mostly made up of €11.4bn in cumulative tax receipts for the year, which was up 12.5pc, on strong corporation tax, income tax and VAT.

Market sources say the NTMA is staying active in bond market despite the limited requirement for fresh cash.

The NTMA had a cash balance of €23bn at the end of 2022 after years of prefunding at low interest rates. The agency raised an average of €19bn a year from 2017 to 2021 at yields mostly lower than 1pc.

The issuance strategy improved Ireland’s funding profile considerably by extending maturities and retiring higher-priced bonds issued in previous years.

The approach was so successful that the NTMA was able to cut short its debt issuance plans last September having raised just €7bn in 2022.

The NTMA faces just one bond redemption of €7bn this year and must pay back €2bn in bail-out funding to the EU. Those payments will be completely covered by debt issuance in 2023.

The NTMA said in its most recent investor presentation that it will be retiring other bonds this year, as well, but expects to maintain large cash surpluses throughout.

Ratings agencies Moody’s and Standard & Poor’s have Ireland on a positive outlook for possible upgrades and will be conducting reviews in April and May, respectively.

A higher credit rating for Ireland would lower its cost of borrowing, which has been rising in the last year due to interest rate increases and generally higher yields in bond markets.

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