Wednesday 22 November 2017

Brighter outlook on Irish bonds but pricing still higher

Emmet Oliver and Brendan Keenan

IRELAND will need to raise at least €20bn in fresh borrowings in 2010 but should be able to hit this target, thanks to growing support from international investors, the National Treasury Management Agency (NTMA) has said.

In February only 45pc of Ireland's bonds were being taken up by international institutions, but this has now risen to 91pc. Ireland is still unable to borrow money for any longer than 15 years. However this may change in time, the NTMA said. Borrowing money over 30 years might even be possible, the agency said.

The difference in the interest rate Ireland pays compared with Germany (known as the spread) has dropped to 1.5pc, said new NTMA chief executive John Corrigan. It was 3pc last March and eventually it could fall to 1pc, he said. It may be a "struggle'' to get it any lower, the NTMA chief added.

Cost

However, the cost of government borrowing is unlikely to return to the low levels seen during the boom years, he said. In the year following the launch of the euro, the difference between the rate charged on German government debt and Irish debt fell as low as half a percentage point.

"We have to keep working on reducing the spread over Germany. But I think the closer we get to one per cent difference, the more uphill the task of getting it lower," Mr Corrigan said.

Paradoxically, the National Pension Reserve Fund, which also comes under the NTMA, decided not to invest in company bonds during the boom years because it thought spreads were too narrow, he said.

Last year some people in the bond market were betting that Ireland would need a bailout from the IMF or the European authorities, but the picture has become rosier thanks to a series of tough budgets from Minister for Finance Brian Lenihan, the NTMA said.

At that time the interest rate on Ireland's borrowings was similar to that of Greece, but the position has reversed with Ireland's rate now 0.70pc below that of Greece, Mr Corrigan explained.

Taxes

Ireland's national debt now stands at €75.2bn, which represents 64.5pc of all the goods and services Ireland produces annually. This is below the EU average of 78.2pc the agency said, although the figures do not include debt to be issued as part of NAMA.

The agency said this year's fundraising would be made easier because it took in some of the 2010 requirement at the end of last year.

A total of €35.4bn was raised last year, with €24.6bn of this used to fund the government's running costs and €5bn used to pay off an existing bond. This left €5bn earmarked for this year's borrowing.

However, with borrowing continuing to grow at a fast pace, within a few years Ireland's debt payments could be eating up over 20pc of all taxes, a graph from the agency showed.

Oliver Whelan, an executive with the NTMA, said it would be great if Ireland could stretch out the duration of some bonds to 30 years.

Larger European countries like France and Germany are able to raise money over these long periods, but it is unusual for smaller economies like Ireland, said Mr Whelan.

Irish Independent

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