Tuesday 23 January 2018

NTMA set to borrow up to €1.25bn in dual auction

Agency front-loads borrowing ahead of European elections

Conor O’Kelly, chief executive of the National Treasury Management Agency
Conor O’Kelly, chief executive of the National Treasury Management Agency
Donal O'Donovan

Donal O'Donovan

The State plans to borrow between €1bn and €1.25bn on the markets this Thursday through two bond deals in the first such dual-track auction since before the bailout.

The National Treasury Management Agency (NTMA) - headed up by chief executive Conor O'Kelly - said it will issue separate bonds due to be repaid in 2022 and 2026 to raise the funds.

"It increases the options available for investors and that helps maintain interest," said Ryan McGrath, a bond market analyst at Cantor Fitzgerald in Dublin.

This week's deal will bring the NTMA almost halfway to its fund-raising target for the whole year.

The agency has said it plans to borrow between €9bn and €13bn on the markets in 2017. In January, the NTMA borrowed €4bn for 20 years in the first bond deal of the year. The money was raised at an interest rate of 1.72pc per year.

Cantor Fitzgerald's McGrath said front-loading this year's borrowing makes sense given the political uncertainty coming down the track in Europe - notably French presidential elections in April.

The State's cost of borrowing has been rising in recent months. It's around double what it was last October, but in historic terms debt remains cheap. The interest on the new five-year bond due to be issued this week is likely to be in the region of 0.20pc a year. Investors will expect to earn just over 1pc a year to lend to Ireland for 10 years.

The rising tide of political risk is pushing up borrowing costs for much of Europe, although from historic lows.

The so called spread - the difference between French and German 10-year borrowing costs - widened on Monday as investors priced in heightened concern over the chances of a victory for the anti-euro Marine Le Pen in this year's election. In Italy, which faces a politically uncertain 2017, a similar measure exceeded 2pc for the first time since 2014.

The spread between 10-year bond yields in France and Germany has widened to almost 0.73 percentage points from 0.48pc at the start of the year; the differential between Italy and Germany has widened 0.37 percentage points to 1.98pc.

While a weaker sterling has been the cockpit of investors' nervousness around the UK, the euro remains more resilient. The euro fell on Monday, but the currency is still more than 2pc higher this year.

"The differing bond performance reflects a long overdue re- assessment of political credit risk premia within the eurozone," said Marc Ostwald, a strategist at ADM Investor Services International in London.

The euro's resilience and rising regional yields are underpinned by growing speculation that the European Central Bank may be nearing the end of its bond purchases, which would remove a significant level of demand from the market - and therefore drive down asset prices, and push up yields.

Irish Independent

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