Monday 23 April 2018

Investors set to pile into State's €1bn bond auction

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Gretchen Friemann

Demand for long-term European sovereign debt is expected to drive down yields on the latest issuance of Irish bonds as the National Treasury Management Agency (NTMA) aims to capitalise on the benign borrowing conditions.

The NTMA yesterday announced it will conduct a €1bn dual-tranche bond auction on Thursday, taking the State's debt management arm closer to the upper end of its €9-13 billion annual issuance target.

So far the agency has raised €9.5bn, if the €609.5m index-linked paper is excluded.

While the NTMA could have locked in negative interest rates on shorter-dated paper - meaning investors effectively pay the Irish Government to hold the bonds - investor demand has gravitated to longer-dated maturities. Eamonn Reilly, a bond trader with Davy's said that trend "has gained momentum over the summer" and he predicted investors will pile into this week's auction as Irish debt looks cheap compared to French sovereign debt.

Ireland's benchmark 2026 notes are trading at about 30 basis points wider than similarly dated French bonds. While the ECB's long-running, ultra-loose monetary policy, along with the nation's economic revival, remain the chief drivers of these low rates, investors are desperate to capture a positive yield.

European governments have seized on the conditions and are printing long-dated debt. In April Belgium issued a 50-year bond, while a month earlier the NTMA attracted a coupon of 2.35pc on a €200m note.

The ECB's decision to defer a decision on how to taper its QE or bond purchasing programme is expected to help keep rates low for this week's auction of bonds maturing in 2026 and 2037.

Irish Independent

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