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NTMA 'very pleased' with huge success of debt swap

THE National Treasury Management Agency could return to the markets with another debt- swap offer within weeks, after investors responded enthusiastically to a deal allowing them to exchange existing two-year bonds for new three-year equivalents, sources said yesterday.

Investors holding just under €3.53bn worth of bonds accepted the surprise offer yesterday -- a take-up level that was well above the €1.5bn to €2bn the NTMA was expecting.

The NTMA said it was "very pleased" with the swap which helps the Government to get over a funding cliff that would have seen the country trying to refinance €11.86bn of bonds maturing in January 2014.

Sources said yesterday that a future offer could cover the €8.27bn worth of 2014 maturities that were not taken up in yesterday's version. Investors may be more inclined to take up a future offer if the eurozone situation improves, if the economy here gathers pace or if the terms of the next offer are different.

The new bonds issued yesterday give a total yield of 5.15pc over the next three years, well below the 21.7pc investors demanded to hold the original two-year bonds at the peak of the crisis last July.

"Ireland could have borrowed a lot more if it was willing to pay a higher interest rate," said Padhraic Garvey, head of developed-markets debt at ING Group in Amsterdam. "Ideally I think we'll see this deal increased to €5bn and there is demand in the markets to get there."

It is understood that the NTMA had been developing plans for the swap for several weeks, but did not make a final decision until Irish bond yields fell earlier this week. The decision was also influenced by the fact that Ireland did not have a three-year bond to "match" the three-year money the ECB has begun offering banks.


Yesterday's buyers included Irish and international banks who borrowed three-year money from the ECB at 1pc and are now re-investing it with the NTMA at 5.15pc, sources added.

Yesterday's deal means the NTMA will be making higher day-to-day interest payments. The interest payments on the old bonds were 4pc. The payments on the new ones are 4.5pc.

The 5.15pc full yield of the new bonds is well above the 3.5pc that Ireland is paying for its bailout money.

The higher cost is seen as part of the price for achieving the Government's aim of a smooth return to the market once the bailout ends in 2013.

The Troika is understood to have encouraged the Government and the NTMA to "strongly consider" returning to the market "as quickly as it possibly can".

The agency is also expected to begin offering new short-term debt -- most likely three or six months -- over the coming months, if the conditions remain favourable.

"Ireland has the confidence of the market right now, unlike Portugal which really now has six months to prove it is not Greece," said Mr Garvey.

Yields on Irish bonds fell yesterday, while yields on Portuguese three-year bonds spiked to 19.4pc -- the highest level since the country joined the euro.

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