Business Irish

Tuesday 21 November 2017

Government raises €1bn in post-bailout bond auction

Investment grade status: government borrowing costs are down
Investment grade status: government borrowing costs are down

THE Government has successfully raised €1bn in a post-bailout bond auction.

The yield on the 10-year bond was 2.967pc while the bid to cover ratio was 2.9 times with total bids of €2.8bn.

“The completion of today's auction marks Ireland’s full return to the markets for the first time since September 2010 and brings to a successful conclusion the NTMA’s programme for a phased return to the markets carried out over the past two years," said John Corrigan, chief executive of the NTMA, which manages the country's debt.

"The €1bn funding raised today, together with the €3.75bnraised in the syndicated issue on 7 January, amounts to almost 60pc of our funding target of €8 billion for the full year.”

The move comes as the cost of Government borrowing fell to an all-time low -  new government 10-year debt hit 3.015pc yesterday ahead of today's deal.

Today's bond deal is also the first since Ireland regained its "investment grade" or lower risk status with rating agency Moody's in January, so market watchers will be keen to see evidence of Asian and Middle East-based investors lending to Ireland, as officials hoped would happen following the ratings move.

Economist Conall MacCoille, of Davy Stockbrokers, said borrowing costs were falling across Europe but Ireland was benefiting in particular because of a recent run of positive data.

"Jobs numbers are stronger, retail sales have been positive and financial results from AIB and Bank of Ireland indicate that they will return capital to taxpayers. It also looks like NAMA could be wound up more quickly, reducing a contingent liability on the State," he said.

NAMA said it paid €3bn yesterday to the main banks to redeem senior bonds that were used to finance the agency's original transfer of property loans.

It means NAMA has now paid off €10.5bn, around a third of the original €31.8bn bill.

The cash will be used by the banks to cut their debt to the European Central Bank (ECB).

We will learn today whether the economy here grew in the last three months of 2013, and if so how quickly.

The provisional gross domestic product (GDP) numbers for the final quarter of the year due to be published today will make it possible to calculate last year's overall rate of growth.

The Government will be hoping that the recent gains in the number of people in work has given a boost to the overall growth figures.

But GDP figures have been affected by the impact of the pharmaceutical patent cliff, with some experts claiming they don't give a true picture of the recovery taking place.

Yesterday on the markets investors appeared to be betting on more positive numbers.

The yield, or interest rate, that investors demand to lend to Ireland for 10 years fell to 3.015pc.

It's the lowest rate ever. The previous low was in June 2005 when borrowing costs hit 3.02pc.

Eight weeks ago it cost the State 3.4pc to borrow for 10 years.

In the worst days of the euro crisis in mid-2011 Ireland was unable to borrow on the markets and bonds were changing hands at prices that implied the interest rate would be above 14pc to borrow for 10 years.

Borrowing costs have plunged since then for a number of reasons, and not just for Ireland.

The initial trigger for the sharp reduction in interest rates was confidence that the euro itself would survive the financial crisis.

The other big factor is the low interest rate environment in the euro area and elsewhere – which in effect causes cheap money to slosh through the global system in the hunt for investments, even relatively risky investments, in order to generate a return.

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