Friday 15 November 2019

NTMA should consider issuing 50-year government bonds

Minister for Finance Michael Noonan will announce the pre-election Budget later this year
Minister for Finance Michael Noonan will announce the pre-election Budget later this year

Colm Kelpie

The State's debt management agency should consider issuing ultra long dated bonds of 50-years in a bid to further improve debt sustainability, it has been claimed.

Goodbody stockbrokers said the repayment of the bulk of the State's International Monetary Fund (IMF) debt, which it estimates will save the State €630m per year in interest savings, coupled with better than expected tax receipts, will now give the Government even more financial wriggle room for a pre-election Budget later this year.

The National Treasury Management Agency (NTMA) announced last week that it had completed the final early repayment of the state's IMF loans.

This means that just over €18bn of the original €22.5bn lent by the Washington-based fund has now been paid back. The remaining €4.5bn will remain outstanding, but these have maturities of beyond 2021.

"Back in August 2014, we estimated that the early repayment of the IMF loans would yield an annual cost saving of €400m," Goodbody economist Dermot O'Leary said.

"This estimate was based on an assumed blended interest cost of 3pc. As it has turned out, the average interest cost on the €9.5bn raised to date has been just 1.46pc, meaning that the annual interest savings is now estimated at €630m."

Mr O'Leary said the Government should now consider issuing 50-year-bonds to further improve debt sustainability.

Last autumn Spain sold 50-year government bonds for the first time, tapping investor appetite for longer maturity debt. The Spanish Treasury sold €1bn of the 4pc securities due in October 2064 in a private placement. The country was capitalising on a bond-market rally that sent yields to record lows.

Irish Independent

Also in Business