THE STATE has borrowed a further €1.5 billion and avoided a surge in funding costs in the first bond sale since measures were introduced to stem the euro-zone sovereign debt crisis.

The National Treasury Management Agency raised €750 million each on two bonds, maturing in 2014 and 2020, netting the top amount targeted in the auction.

This was the first real testing of the bond markets by the State since the Greek crisis intensified and the EU agreed a €750 billion fund to stem the euro-zone debt crisis. The fifth monthly auction of the year brings to €13.2 billion the total raised this year – some 66 per cent of the Government’s borrowing requirement for 2009.

Investors bid over three times the amount on offer, reflecting an appetite to lend to Ireland as other euro-zone states struggle to convince that they can pay their debts.

The agency had last month considered pulling the monthly bond auction due to spiralling debt costs on the back of the Greek crisis, but it proceeded after the agency concluded that “normality” had returned to the debt markets.

Ireland’s borrowing costs rose over interest rates paid in auctions held earlier this year due to the crisis as investors demanded a higher rate to lend to the State.

“Ireland now appears to be getting tarred with the same brush as the likes of Greece and Portugal, which suggests that the agency may well end up paying higher interest rates to raise funds,” said Alan McQuaid, economist at Bloxham Stockbrokers.

The 2014 bond was sold at an average yield of 3.11 per cent or 1.9 percentage points over the equivalent German bond, the benchmark in the debt markets, as investors bid 3.1 times the sum sought. This compared with a spread of 1.18 points over the comparative German debt and 2.8 times the sum bid by investors when the bond was auctioned last February.

The 2020 bond was sold at an average yield of 4.72 per cent or 1.87 percentage points over German debt with investors bidding 3.1 times the amount sought.

This compared with a spread of 1.25 points over German debt and investors bidding 2.6 times when the bond was auctioned in March.

Oliver Whelan, the agency’s head of funding, said he was “very satisfied” with the auction result.

Ireland “may well” see conditions for spreads over German debt to narrow, he said. The agency may seek to raise slightly over €20 billion this year and the “low 20 billions” next year, depending on the budget deficit.

Mr Whelan said the agency would not need to raise more than the €1.5 billion sought at monthly auctions to reach the funding target of €20 billion this year. The average maturity of outstanding Irish debt was six years, he said.

The agency would consider skipping one of its monthly auctions if it reached its annual target, he said, or if the markets became dysfunctional, but he did not expect this to happen.

There were no immediate plans to raise a sum of €3 – €5 billion by way of a syndicated bond sold through banks, he said, but he would not rule it out as an option later this year or early next year.