Saturday 18 November 2017

Stepping back from new bond auctions 'sensible'

Donal O'Donovan

Donal O'Donovan

CANCELLING the two government bond auctions planned for the rest of the year has been described as "a sensible move" by analysts and bankers abroad.

The decision not to hold a bond auction until next January was revealed as the Government announced the enormity of the latest estimates for bailing out the country's banks.

The National Treasury Management Agency (NTMA) has already borrowed enough to run the country until the end of May next year and therefore the Government can afford not to hold the auctions.

While cancelled auctions can be seen as a sign of a country's weakness, analysts said, in this case, the benefits outweigh any risks.

The markets welcomed the announcement on the scale and impact of the bank bailouts because of the clarity it provided, but sources warned that overall, the news was bad and would take time to digest.

The yield on government debt fell after the announcement, but only slightly -- from 6.7pc to 6.55pc.

Gary Jenkins of London-based Evolution Securities said: "Stepping back from the market is sensible right now. If you don't have to borrow at these prices why would you?"

Mr Jenkins said yesterday's announcements will help win over investors, but added they will not be seen as the final word.


"Debt yields did tighten but that is a one day thing," he said. "Economic data from here on will dictate the market reaction."

A senior banker at one US investment bank said cancelling the auctions now sidesteps the risk of an auction being poorly received in the wake of the revised figures for Anglo Irish and nationalisation of AIB.

"That could have an even more negative impact on sentiment," he said.

He said Dubai which has not held a bond sale since its financial crisis last year is running a marketing roadshow to win back investors before its next sale later this year.

Padhraic Garvey, a senior analyst at Dutch bank ING agrees that cancelling auctions now is the right thing to do.

"It's not unusual to step back from the market once a country is fully funded," he said.

"And it means there is the carrot for investors of no new supply."

But he warned against leaving it too long without issuing a new bond. "It would appear weak to stay out of the market next year," he said.

Mr Garvey said one benefit of the State not issuing bonds is that Irish banks may be able to make use of any demand to lend to Ireland.

"Spreads have gone in and with no competition from government bonds this could give the healthier banks a window to issue their own bonds," he said.

Irish Independent

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