Record demand sees Irish bonds shrug off QE end
State borrows €4bn in 10-year bonds, ahead of market expectations of a €3bn deal, at interest rate of 1.12pc
Ireland borrowed €4bn on the bond markets yesterday, shrugging off the end of the ECB's bond-buying programme, with record levels of investor demand for lending to this country.
The funds were borrowed at an interest rate of 1.12pc, slightly more expensive than a similar transaction last year but a better rate than the 2016 equivalent.
There was enough demand from investors for the country to have borrowed more than €18bn, an all-time record for a transaction of its type. The €4bn borrowed exceeded expectations, which were for a €3bn deal.
Yesterday's deal was being closely watched as it was Ireland's first since the ECB ended the bond-buying programme known as quantitative easing (QE), which was designed to pump liquidity into the European economy.
The ECB's strong demand for bonds meant countries were able to borrow at low interest rates, and investors were watching to see whether the fact that the programme finished at the end of 2018 meant borrowing costs would rise.
Instead, Ireland's National Treasury Management Agency (NTMA) has managed to borrow 10-year money at rates in line with similar transactions in 2016 and 2018. The transaction saw Ireland issue new bonds known as 'benchmark' 10-year bonds. It didn't issue benchmark 10-year bonds in 2017.
NTMA director of funding and debt management Frank O'Connor said: "This is an encouraging start to our 2019 issuance programme. Today's deal already provides 25pc of the mid-point of our target issuance of €14bn-€18bn for the year, with investor demand for our bonds remaining strong and broadly based."
Mr O'Connor said the demand level, coupled with NTMA cash balances of more than €15bn, meant the agency was well placed to pay back money that Ireland owes to bondholders this year.
Ryan McGrath, head of fixed income strategy and sales at Cantor Fitzgerald Ireland, said the 1.12pc interest rate was "very attractive".
"The bid to cover ratio (indication of demand) of 4.5 times is the highest since Ireland returned to bond markets in 2013. Investors chose to focus on Ireland's strong fiscal and economic fundamentals rather than any upcoming Brexit risks that may be on the horizon," Mr McGrath said.
Another notable feature of the deal was that domestic players - typically banks - put in 20pc of the orders for the bonds. That was up from an average of 7pc in recent years. The jump may reflect banks' views that the Irish bond is attractive, or alternatively that they may have been looking to replace bonds they already held that are maturing.
BNP Paribas, Bank of America Merrill Lynch, Citi, Davy, NatWest Markets and Societe Generale were the entities appointed to manage the sale.
Despite the positive result of yesterday's deal, NTMA chief executive Conor O'Kelly has previously warned that the country's level of indebtedness leaves us exposed to a downward turn in the global economy.
Speaking last summer, he said that the Government's stakes in AIB, Bank of Ireland and Permanent TSB should be sold sooner rather than later.
"We have to recognise just how vulnerable we are in the medium- to long-term while our debt is still as elevated," Mr O'Kelly said.