Friday 27 April 2018

Irish borrowing costs fall in €600m sale of bills

Finance Minister Brian Lenihan. Photo: Tom Burke
Finance Minister Brian Lenihan. Photo: Tom Burke

Ireland’s short-term borrowing costs fell in a sale of €600m of treasury bills two days after its credit rating was cut by Standard & Poor’s.

The National Treasury Management Agency sold €200m of securities due February 14, 2011 at an average yield of 1.978pc, 48 basis points lower than at an August 12 sale.

It also sold €400m of April 18, 2011 debt at an average yield of 2.348pc, down 46 basis points. Both securities were oversubscribed.

Irish bond yields soared yesterday after S&P cut the country’s rating to AA- amid concern that the rising cost of supporting banks will swell the budget deficit.

S&P increased its estimate for recapitalising the banking system to as much as €50bn from €35bn previously.

While the Government has spent almost two years on an austerity drive to trim the country’s deficit, the cost of supporting Anglo Irish Bank has undermined sentiment.

“The very high bid-to-cover ratios and lower borrowing costs are eye-catching,” said David Schnautz, a fixed-income strategist at Commerzbank AG in London.

“It suggests some investors do see value in Irish securities after the recent sell-off. What I find encouraging is that the NTMA decided to stick to the amount it planned to sell even though they could have issued more given the strong demand.”

Investors bid for 10.1 times the February 2011 securities and 4.1 times the April 2011 debt. That compares with 3.6 times and 3.1 times at the August 12 sale, respectively.

The premium investors charge to hold Irish 10-year debt over the German equivalent, Europe’s benchmark, remained at a record 344 basis points today. It has widened 108 basis points since the start of the month.

“This morning’s Irish treasury bill auction result was better than expected,” analysts at fixed income specialist Glas Securities said in an e-mailed note.

“While the cover is very strong, more importantly the average yield is significantly better than the last treasury bill auction.”


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