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State borrows €1.5bn in bond auction offering exceptionally low yields

Many bidders paid more than the bonds’ face value to acquire them


The State has borrowed €1.5bn in an oversubscribed bond auction offering exceptionally low yields – a sign of investor demand for safe cash havens even on loss-making terms.

The National Treasury Management Agency said it sold the bonds – €500m maturing in 2027, €700m in 2030 and €300m in 2050 – in an auction among 15 institutional traders today.

This takes the total raised by the NTMA this year to €20bn. That is the lower end of the range which the agency set for raising funds to support State finances and emergency Covid-19 supports in 2020. It plans further auctions and could seek to raise up to €24bn by year’s end.

The 2027 bonds were auctioned at a negative yield of -0.257pc, the 2030 bonds at -0.025pc.

This means the bidders in both cases paid more than the bonds’ face value to acquire them. When the bonds mature in 2027 and 2030 respectively, the holders will receive less than what was paid for them today.

The -0.257pc yield on the 2027 bond is the lowest yield ever recorded on a State-issued bond. The NTMA’s shorter-term treasury bills issued in recent months have offered yields as low as -0.55pc. Typically the shorter the term, the lower the risk of non-payment and, therefore, the lower the payout offered.

Yet institutional investors still view negative-yield bonds as offering a better and more secure deal than keeping funds on deposit in the prevailing negative interest-rate environment for corporate cash.

Many investment and pension funds need to maintain large holdings in government bonds issued by nations with strong credit ratings. Since last year, the debt securities of several European nations, led by Germany and Switzerland, have traded consistently in negative-yield territory.

The 2050 bonds issued today offer a yield upon maturation 30 years from now of 0.602pc. These better pay-outs – though still below expected inflation – reflect the increased risk of default over what is a much longer time frame for repayment.

The 2027 and 2050 bonds attracted bids more than 2.75 times the levels of the bonds on offer, while bidders registered less interest in the 2030 debt securities.

Online Editors