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Back to the markets: NTMA prepares to issue annuity bond

The National Treasury Management Agency will sell annuity bonds, possibly up to 35 years in maturity, later this year.

The statue on the side of Treasury Buildings, the rented home of the NTMA.
The statue on the side of Treasury Buildings, the rented home of the NTMA.
Image: Laura Hutton/Photocall Ireland

THE AGENCY responsible for managing Ireland’s national debt and issuing new bonds says it is preparing to return to the bond markets for the first time since Ireland’s EU-IMF bailout.

The National Treasury Management Agency this afternoon confirmed it was to issue annuity bonds, with possible maturities of up to 35 years, depending on market interest.

The statement followed a report by Bloomberg which said the sale could proceed within weeks – marking the first time since September 2010 that Ireland had issued new debt, after which it was frozen out of the bond markets by high interest rates and left to seek EU-IMF assistance.

“The NTMA will not be issuing sovereign annuities,” the agency said. “Rather, it will issue annuity bonds which are particularly suited to the manufacture of annuity products because they are amortising bonds that provide a series of equal payments each year over their life.”

This means that in contrast to a traditional government bond, which carries a fixed annual interest repayment with the original investment repaid in full at the end, these new bonds will not be repaid in full when they mature.

Because the bonds will not carry a final payout, they are likely to carry a moderately higher interest rate than a traditional bond would – but to counter this, annuity bonds are issued over longer time periods.

The NTMA said it expected demand from the Irish pensions industry for the new bonds, as they offered a potential solution for the managers and trustees of pension funds who needed to address “funding gaps in their schemes”.

It had not yet decided whether it would auction the bonds in the same manner as traditional sovereign bond offerings, or whether they would be issued at a fixed price by agreement with a buyer.

“The NTMA is not prescriptive about any particular term for these bonds but based on industry needs it anticipates that they will be for a range of maturities of up to 35 years.”

If Ireland was borrowing from the open markets, it would currently pay an annual interest rate of 6.83 per cent on a bond maturing in 2021, and 6.85 per cent on a bond maturing in 2026.

Ireland has been almost entirely absent from the bond markets since the bailout was agreed, with the only return being an operation in January where €3.53bn of bonds set to mature in January 2014 were exchanged for others falling due in February 2015.

Read: Ireland returns to bond markets with €3.53 billion ‘swap offer’

Q&A: Will Ireland need a second bailout? Here’s what 10 economists think

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Gavan Reilly

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