08-06-2015 12-16-26

Ireland made a successful return to regular bond auctions on Thursday, selling €1bn of 10-year paper in its first such tender since their suspension three and a half years ago ahead of the country’s EU/IMF bailout.
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After 10-year yields fell to a record low of just above 3.0% on Wednesday, compared with a 2011 peak above 15%, the National Treasury Management Agency (NTMA) sold the bond at a record-low yield of 2.967%. Even with the low yield, the sale saw strong demand, with a bid-to-cover ratio of 2.9.
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The €1bn raised yesterday, together with the €3.75bn raised in the syndicated issue on January 7, amounts to almost 60% of the NTMA’s overall funding target for 2014 of €8bn.
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The NTMA funding target for this year is not overly ambitious and is in fact relatively small in Eurozone terms and that should in the short-term at least help to keep Irish bond yields lower relative to other “peripherals”. Still, given the current favourable market conditions, which are by no means guaranteed to last for the remainder of 2014, we think the debt agency should be looking to raise as much money as it can at the low attractive rates, notwithstanding concerns over running up high cash balances and adding to the country’s debt/GDP ratio.
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<b><i>Already this week we saw Belgium sell a syndicated 20-year bond at just over 3.0% in response to investor demand for a higher yielding issue. We think the NTMA should be a bit more adventurous next time and issue a 25-year or 30-year bond, especially if long-dated yields are still attractive on the occasion of the next sale.
<p><h5>Alan McQuaid</h5>



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