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Ireland raises €4.19 billion in first return to bond markets

Investors were willing to give us €4.19 billion in loans maturing in 2017 and 2020 – but they come at a cost.

The NTMA's auction is the first time in almost two years that Ireland has raised long-term cash without the involvement of the EU or IMF - but the interest rates are still penal.
The NTMA's auction is the first time in almost two years that Ireland has raised long-term cash without the involvement of the EU or IMF - but the interest rates are still penal.
Image: Niall Carson/PA Wire/Press Association Images

Updated, 18:06

IRELAND HAS RAISED almost €4.2 billion in its first sale of long-term government bonds since before it was forced into an EU-IMF bailout.

The National Treasury Management Agency said investors had bought €4.19 billion of new bonds, due to be repaid in October 2017 and October 2020, as part of its operations earlier today.

In addition, investors swapped €1.04 billion of existing bonds – which were due to be repaid in either 2013 or 2014 – for the later ones, which carry a higher interest rate.

The issue of the new long-term bonds marks the first time Ireland has raised cash on a long-term basis, independent of the EU-IMF bailout programme, since September 2010.

The bonds maturing in 2020 will carry an annual interest rate of 6.1 per cent, while the loans up for repayment in 2017 carry interest of 5.9 per cent.

The NTMA, which is responsible for managing Ireland’s national debt and funding needs, had surprised many investors when it announced the swap-and-sell arrangements this morning.

This evening the Minister for Finance, Michael Noonan, said the return to markets was a “very welcome and positive development”, and said the majority of the demand for the new debts came from foreign investors.

“The strong demand and the fact that over €4 billion of this is new money is a significant step for Ireland in regaining our economic sovereignty,” he said.

Noonan said the auction showed investors were reacting favourably to the commitment by EU heads of government to break the link between banking debt and sovereign debt, but warned that this commitment needed to be delivered upon if Ireland was to return to the markets on a full-time basis.

‘Significant step’

NTMA John Corrigan said he was “very pleased” with how the activity had been received, “particularly the fact that investors committed more than €4 billion of new money to our first long-term issuance since September 2010.”

He added that the return to independent borrowing was a “very significant step for Ireland on the way to full bond market access”.

He also said that today’s exercises meant the NTMA now had a “significant proportion” of the €8.2 billion it needed to repay a tranche of bonds which are due to mature in January 2014 – a point which had previously been seen as a significant “funding cliff”.

The amount raised is similar to the amounts Ireland had routinely raised in monthly bond auctions prior to September 2010, after which it opted against issuing further bonds due to the rising costs of borrowing that ultimately sent Ireland into its €67.5 billion bailout.

Though the interest rates paid by the NTMA today are down significantly on the rates it would have paid on second-hand markets only months ago, its rates are still higher than they had been before the bailout was needed – and are still far higher than other eurozone countries pay.

An 8-year loan for Germany, similar to the 2020 bond issued by Ireland today, would only cost it an annual interest rate of 0.963 per cent. The UK would pay interest of 1.09 per cent, while France would pay 1.831 per cent.

The costs are not much higher than what Italy would pay, though – with the Italian government being charged 5.807 on second-hand markets this evening – while Spain would pay more than Ireland did, at 6.742 per cent.

Earlier this month, the NTMA sold €500 million of government debt in the form of three-month treasury bills which are different to bonds in that they run over a much shorter period of time.

The ‘T-bills’ reached a yield of 1.8 per cent – beating the 2 per cent interest rate they were expected to pay – and were over-subscribed.

The NTMA had said last week that it planned three to four more auctions of short-term treasury bills before the end of the year, and that “market conditions permitting” it planned to issue a more conventional long-term bond, like that sold today.

Additional reporting by Hugh O’Connell

Read: At least 3 more bond auctions before year end, says NTMA

More: Ireland’s €500m government debt sale goes better than expected

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Gavan Reilly

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