Friday 23 March 2018

Our bond yields breach psychological 5pc level

Brendan Keenan

THE downgrading of Greece by Moody's ratings agency on Monday pushed the cost of Irish government borrowing above 5pc, market sources say.

Yesterday's monthly auction of Irish government bonds by the National Treasury Management Agency saw lenders demand a rate (yield) of 5.088pc on bonds due for repayment in eight years.

Although there was good demand for the bonds at these levels, soundings by the primary dealers who trade NTMA bonds last week suggested it would be possible to auction the bonds at around 4.8pc.

"People say these downgrades were expected, and priced in the market, but they always seem to have an impact when they actually happen," a market insider said.

The move above the psychological 5pc level compared with a yield of 4.5pc when similar 2018 bonds were issued in August 2009. A more recent comparison was provided by the 2016 bond sold at an average yield of 4.52pc yesterday -- compared with 3.66pc in April. The NTMA sold €750m of each bond.

The NTMA said it was pleased that the amount offered by lenders was around three times the €1.5bn actually raised by the NTMA, which was in line with recent auctions.

"In general, we find that investors are giving Ireland credit for the actions it has taken on the deficit," said Oliver Whelan, NTMA head of funding and debt management.

"We saw the Moody's analyst for Ireland saying he was impressed by the measures.

"Clearly, investors see value in Irish bonds at these rates -- and why wouldn't they -- but we would like to see a lower spread over German rates," he said.

The €1.5bn borrowing brings the NTMA close to the €20bn required for this year.

"The NTMA could easily have skipped today's auction but at this point in time, it is more about sending out the right signals to markets and leaving the door open for the banks to raise their required funding," said Alan McQuaid, chief economist at Bloxham Stockbrokers.

Irish Independent

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