Tuesday 24 October 2017

NTMA raises €1.5bn in bond sale

Central Bank Governor Patrick Honohan said the Government needs to cut its budget deficit at a faster pace. Photo: Bloomberg News
Central Bank Governor Patrick Honohan said the Government needs to cut its budget deficit at a faster pace. Photo: Bloomberg News

The National Management Treasury Agency sold €1.5bn of bonds, a day after its borrowing costs reached a record and Central Bank Governor Patrick Honohan said the Government needs to cut its budget deficit at a faster pace.

The agency said it sold €500m of debt due in 2014 at an average yield of 4.767pc, compared with 3.627pc at the previous auction on August 17.

It also auctioned €1bn of 2018 securities at a yield of 6.023pc, up from 5.088pc in a June sale.

The extra yield investors demand to hold 10-year Irish bonds over similar maturity German narrowed on the sale after rising to above 400 basis points for the first time yesterday on investor concern that the cost of shoring up the country’s banks will hurt efforts to tame the European Union’ biggest deficit.

Honohan said yesterday that bank bailout costs remain “manageable” and shouldn’t derail the Government’s deficit-cutting efforts.

“From a market point of view, this is seen as a stunning good result in terms of demand,” said Alan McQuaid, chief economist at Bloxham Stockbrokers in Dublin.

“Clearly we’re paying higher interest rates. You can’t go on paying a premium every single month for an auction. But the NTMA is well funded into next year. We’re comfortable in that position. ”

Demand

Investors bid for 5.1 times the amount of the 2014 bond offered, compared with 5.4 times last month.

Demand for the 2018 security had a so-called bid-to-cover ratio of 2.9, the same as in June.

The Irish 10-year bond yield fell 14 basis points to 6.40pc as of 10:20am in London, narrowing its premium over bunds to 380 basis points.

Investors’ concerns about the fiscal health of some euro nations are resurfacing four months after the EU announced an almost $1 trillion rescue package to stamp out contagion from Greece’s debt crisis.

The yield premium between Portuguese 10- year bonds and German bunds reached a euro-era record of 404 basis points today.

Yields on Spanish 12- and 18-month Treasury bills rose at an auction today. Greece sold €390m of 13-week bills today to yield 3.98pc, down from 4.05pc at the previous sale on July 20.

The government has injected almost €33bn into banks and building societies, with two-thirds of that going to Anglo Irish Bank, which was nationalised last year.

While Anglo executives say the lender may need a total of about €25bn, Standard & Poor’s said the figure may be as high as €35bn.

No rescue

A spokeswoman for the Central Bank in Dublin said yesterday that a final cost estimate for the Anglo bailout is at “an advanced stage of readiness.”

Finance Minister Brian Lenihan in newspaper interviews this weekend rejected speculation that the cost of bailing out the banking system will force the country to turn to the EU and the International Monetary Fund for emergency funding.

“Our base case remains that the Government will not turn to the EU and IMF for a funding package,” said Gillian Edgeworth, an economist at UniCredit in London.

That “would change very rapidly in the event that the banking sector as a whole in Ireland experienced a significant deposit outflow,” she said.

Austerity measures

Taoiseach Brian Cowen's government has cut wages and raised taxes in a bid to bring the deficit from 13.6pc of gross domestic product last year to within the EU’s 3pc limit in 2014.

The austerity measures have aggravated a recession that led the economy to shrink more than 7pc last year.

The economic crisis and growing cost of the bank bailouts has led some of Cowen’s allies to express doubts about his leadership style.

Tom Kitt, a lawmaker for Fianna Fail, said the party should meet to discuss its leadership.

Lenihan, flanking Cowen at a press conference in Dublin late yesterday, said bond markets haven’t been affected by doubts over Cowen’s future.

“The most important rumblings around here are the rumblings we are seeing in international markets,” Lenihan said. He criticised opposition parties for “unhelpful” comments about the possibility of negotiating with Anglo bondholders.

Bloomberg

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