Sunday 21 October 2018

NTMA opens markets with €4bn bond deal

The ECB is cutting its monthly asset purchases
The ECB is cutting its monthly asset purchases
Donal O'Donovan

Donal O'Donovan

The State is set to borrow as much as €4bn this week, in a deal that will reopen the European bond markets for 2018.

Last year Ireland was also the first European sovereign to issue new bonds, when the National Treasury Management Agency (NTMA) borrowed €4bn from a syndicate of borrowers.

This year the NTMA has mandated Citi, Danske Bank, Davy, JP Morgan, Morgan Stanley and Nomura as joint lead managers for a planned 10-year, euro denominated, syndicated bond deal.

The deal is expected to happen as soon as today, though the size or timing of the deal hasn't been confirmed. The total raised is expected to be between €3bn to €4bn.

The NTMA has indicated it plans to borrow €14bn to €18bn in 2018 by issuing bonds, mainly to replace older debts as they fall due for repayment.

The deal takes place as borrowing costs across the euro area shot higher on Tuesday as a cut in monthly ECB asset purchases became a reality, with hawkish comments from a top official and strong data hurting sentiment towards bonds on the first trading day of the year.

Bonds from the Italy, Spain and Portugal bore the brunt of the selling.

But even "core" or top-rated bond markets were left unscathed from the selling pressure, with Germany's 10-year bond yield hitting two-month highs.

Benoit Coeure, the Frenchman in charge of carrying out the ECB's bond purchases, sees "a reasonable chance" the €2.55trn stimulus programme will not be extended again when it expires in September, he told a Chinese financial magazine at the weekend.

The comments highlight that the days of extraordinary monetary stimulus are nearing an end given stronger economic conditions and signs of a pick-up in inflation.

Data on Friday showed inflation in Germany, Europe's biggest economy, hit its highest level in five years in 2017.

ECB monthly bond purchases, which have long underpinned bond yields, have fallen to €30bn from €60bn.

"While the cut in ECB asset purchases is not a surprise, there is some uncertainty as to how the markets will adjust to this in an unusually heavy month for supply," said Rainer Guntermann, a rates strategist at Commerzbank in Frankfurt.

"The more hawkish commentary from the ECB is also weighing on markets."

Germany's 10-year bond yields rose to 0.46pc, while the yield on Irish 10-year bonds approached 0.70pc, the highest level since last September. (Additional reporting Reuters)

Irish Independent

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