Saturday 25 November 2017

State issued new bonds just ahead of market reverse

NTMA's Treasury Building
NTMA's Treasury Building

Gretchen Friemann

The State borrowed €1.25bn on the bond market yesterday just before investor jitters drove up yields on European sovereign debt, reversing a rally that has held sway since the ECB signalled interest rates are unlikely to rise until as far out as 2019.

In its final auction of the year, the National Treasury Management Agency (NTMA) raised €800m from the issuance of nine-year bonds, which attracted a yield of 0.54pc and €450m from an issue of 28-year paper, which priced at a yield of 1.7pc.

Moments after the bonds were issued, however, markets fell away as investors began to fret about whether the rally was overdone.

Eamonn Reilly, a trader at Davy, noted that yields on the NTMA's freshly-issued paper moved out by four to five basis points after the auction but he dismissed concerns it signalled the start of a wider sell-off, arguing the ECB "is still there in the background".

The European Central Bank recently confirmed it will cut its monthly bond purchases from €60bn to €30bn from January and extended the stimulus measure, known as quantitative easing, deep into 2018, in an effort to return slowly return markets to normality.

While some have questioned whether yesterday's dip signals bond prices, which move in the opposite direction to yields, have hit a peak, Cantor Fitzgerald's Ryan McGrath, stressed it was "too early" to make that call.

He said that a correction was potentially "overdue" and said "we could get more volatility into next week".

The sell-off in the European bonds was sharper in the region's periphery countries, with the slump coinciding, unusually, with a fall in equity markets.

But the sour day of trading also marked the final bond issuance for the NTMA.

It has raised €15.75bn, taking it far outside the €9bn to 13bn range it guided at the start of the year.

Both Cantor Fitzgerald and Davy predicted the State will raise a similar amount next year.

Mr McGrath said he anticipates the 2018 range will be in "line or just above with this year" while Mr Reilly said Davy is pencilling in €15bn-€18bn.

The NTMA must pay €8.8bn in bond redemptions next year and that rises to €13.7bn in 2019.

Irish Independent

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