Business Irish

Tuesday 17 September 2019

BoI pulls bond deal as market waits on ECB steer

Stimulus: The ECB is leaning towards another interest rate cut. Photo: Bloomberg
Stimulus: The ECB is leaning towards another interest rate cut. Photo: Bloomberg
Donal O'Donovan

Donal O'Donovan

Bank of Ireland has pulled a €300m bond deal at the last minute yesterday, amid muted demand and ongoing gyrations in the market ahead of a planned ECB interest rate setting meeting this month.

It is understood banks managing the deal, Citi, Davy, Mizuho, Nomura and UBS, secured €340m of orders, more than the bank was seeking but a relatively low so-called bid-to-cover ratio in a market where bond deals are typically oversubscribed.

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The low demand increased the risk that the bonds could dip in later trading, leaving bondholders nursing paper losses and possible resentment. The bank opted to postpone the deal instead, sources said.

In a statement, Bank of Ireland said it decided to postpone its proposed transaction "in order to ensure successful execution for both the issuer and investors. Bank of Ireland would like to thank investors for their interest in today's announcement".

The so-called tier two 10-year subordinated bond had been on course to price at a low cost to the bank of around 2.7pc annual interest.

Pricing debt in the bond market has become fraught with difficulty for investors and debt issuers, as fears of a global slowdown combine with a so-called wall of money chasing bond market assets. That is complicated further by anticipation that the European Central Bank (ECB) will pump more cash into the system.

ECB policymakers are leaning toward a stimulus package which includes a rate cut, a beefed-up pledge to keep rates low for longer and compensation for banks over the side-effects of negative rates, five sources familiar with the discussion said.

Many also favour restarting asset purchases, including bonds, but that is controversial because the ECB already holds so much of Europe's bond debt and a new scheme could face legal challenges.

Irish Independent

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