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State borrows €1.5bn more to fund its swelling deficit


Auctions: Treasury Buildings in Dublin

Auctions: Treasury Buildings in Dublin

Auctions: Treasury Buildings in Dublin

THE State's treasury has borrowed €1.5bn to help cover the skyrocketing deficit amid record unemployment and emergency Covid-19 spending.

The National Treasury Management Agency (NTMA) yesterday issued €850m in bonds due for redemption in 2029 and €650m more maturing in 2050.

Both offerings were oversubscribed by institutional investors seeking low-risk debt securities - though at a moderately higher cost to the State than when 2029 bonds were last auctioned on the eve of Ireland's lockdown.

The nine-year bonds offered yields, or interest payouts, barely above zero - just 0.043pc. This was the first time since July 2019 that the NTMA's auction of that benchmark 2029 debt security merited a yield above the zero threshold.

Yields offered to investors to take the 30-year bonds were higher - 0.79pc - reflecting greater perceived risk of default at some point between now and 2050.

By comparison, the last time the NTMA issued 2029 bonds - coincidentally on March 12, hours before the Government closed schools and restricted public events in the first act of the lockdown - its auction of €1bn of the 2029 IOUs delivered negative yields of -0.156pc, a record low.

This showed, at the time, buyers were willing to add potentially loss-making bonds to their portfolios simply for the long-term security they offered.

While yesterday's auction results represent exceptionally cheap borrowing in historic terms, the increase in yields shows that investors now view Irish debt as slightly riskier than just two months ago, particularly relative to debt issued by the AAA-rated nations of Europe: Germany, Denmark, the Netherlands, Sweden and Switzerland. Their debt securities still command below-zero yields amid the rock-bottom interest rate environment maintained by the European Central Bank.

Since the lockdown, the NTMA has doubled the scale of its planned bond auctions this year to a range of €20bn to €24bn to fund this year's runaway deficit. Last month it had been forecast to hit €23bn, but Taoiseach Leo Varadkar this week said the deficit could reach €30bn by year's end.

The NTMA has raised more than €12.5bn this year and last month redeemed nearly €11bn in 2004-issued bonds paying out 4.7pc. This act shaved more than €450m off the State's annual interest bill.

Irish Independent