Monday 22 July 2019

NTMA to borrow at record low amid hunt for yield in cash-soaked markets

Ireland is set to borrow €1bn on the markets at an all-time-low price today as bond investors prepare for a renewed transatlantic stimulus boost. (stock picture)
Ireland is set to borrow €1bn on the markets at an all-time-low price today as bond investors prepare for a renewed transatlantic stimulus boost. (stock picture)
Donal O'Donovan

Donal O'Donovan

Ireland is set to borrow €1bn on the markets at an all-time-low price today as bond investors prepare for a renewed transatlantic stimulus boost.

The National Treasury Management Agency (NTMA) is scheduled to issue €1bn of new debt today in a mix of 10-year and 15-year bonds.

"It will probably be an all-time-low for new debt," according to Ryan McGrath of Cantor Fitzgerald in Dublin.

Irish 10-year bonds headed into last night's close at prices that imply a yield to investors of 0.17pc.

That is up on where markets were last week but close to having halved since the NTMA last issued 10-year bonds in June, at a 0.30pc yield. In historic terms, the price of debt is extraordinarily low. The yield in 15-year Irish bonds is set to price around 0.54pc/0.55pc.

That compares with a yield for investors of 1.32pc when the last 15-year bonds were issued in April 2018.

The global bond rally is so fierce that Italy attracted demand of around €17.5bn yesterday for €3bn of bonds that will not mature until 2067.

That is despite Italy now being considered Europe's fiscal problem child and with a government at near-constant odds with the European Commission about its budgets.

The Irish bond deal will mean the NTMA will have secured €11.25bn of its target for the year of borrowing €14bn to €18bn. Investors are buying up bonds even with dismally low returns in an intense hunt for yield spurred by anticipation that the European Central Bank and now the US Federal Reserve will ramp up stimulus in a bid to lift anaemic growth.

The European Commission yesterday cut its growth and inflation estimates for the euro area, adding to the weight of expectation the ECB will pump even more cash into the bond market.

And global markets shifted higher yesterday after US Federal Reserve chairman Jerome Powell said that the Fed is ready to "act as appropriate" to sustain a decade-long expansion.

That boosted expectations of a US interest rate cut later this month.

While it reflects gloom about growth, borrowers including the Irish State are reaping the benefit.

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