THE NATIONAL Treasury Management Agency (NTMA) has sold a further €1 billion in bonds, bringing it within €1 billion of the €25 billion in borrowing the Government needs to run the State this year and refinance debt.
The sale, which brings the national debt to more than €68 billion, implies increasing market confidence in Irish sovereign debt as there was strong demand for the bonds. There has also been a decline in the spread between the price of Irish and German 10-year bonds, the prime measure of the market’s perception of a European economy’s condition.
However, economists warned that the looming Dáil debate on the National Asset Management Agency (Nama), the second Lisbon Treaty referendum and the 2010 Budget each presented potential “banana skins” for the Government. Any one of these had potential to send Irish borrowing costs soaring again, said Alan McQuaid, chief economist with Bloxham stockbrokers.
“On the assumption that there are no unpleasant surprises over the remainder of 2009 and the Government sticks to its goal of cleansing the banking system, and of getting the public finances back in order, then there is no reason . . . why demand for Irish Government bonds shouldn’t remain strong and yield spreads over Germany narrow in further,” he said.
The NTMA offered the 4 per cent Treasury Bond 2014 and the 4.5 per cent Treasury Bond 2018 in yesterday’s auction. Total bids were received for €3.085 billion and €1 billion was issued.
“An amount of €400 million of the 4 per cent Treasury Bond 2014 was issued where the total bids received were 3.7 times the amount allocated, while €600 million of the 4.5 per cent Treasury Bond 2018 was also issued where the total bids received were 2.7 times the amount allocated.”
The 2014 bond issue had an average yield of 3.393 per cent, down from 4.2 per cent in April, 3.898 per cent in May and 3.785 per cent in July. The 2018 bond had a yield of 4.55 per cent, down from 5.082 per cent in April.
Anthony Linehan, deputy director of funding and debt management in the NTMA, said the agency had seen considerable demand for Irish bonds.
“We intend to continue with the auction schedule as announced. In as much as we raise more money than is needed this year, we will use it to prefund budget requirements for next year,” he said.
Asked if the NTMA would seek to tap the syndication market again, Mr Linehan said: “If there was strong demand for Irish bonds, we’re not ruling out that we would – either by an extraordinary auction or otherwise or syndications – fill those demands.”
The spread between Irish and German bonds is now 153 basis points (1.53 percentage points) and remains higher than the 120-point spread between Greek and German bonds. However, the spread between Irish and German bonds is down from 210 points in July and a high of 282 points this year.
“That reflects both the more positive reflection on Ireland but also an increased appetite for what are perceived as risk assets in general,” Mr Linehan said.
He said investors still see potential for more “outperformance” for Irish bonds.
