The National Treasury Management Agency (NTMA) on Thursday raised €1.25 billion in a bond auction, its first since the European Central Bank (ECB) began raising interest rates in July. The yields attached to the bonds were significantly higher than in the agency’s last auction in May.
Thursday’s sale brings €7 billion the total amount the agency has raised on behalf of the State so far this year out of a target of between €10 billion and €14 billion for 2022. This represents a decline of up to 46 per cent on the amount raised last year, with the Government’s Covid-related spending easing this year.
One of the treasury bonds auctioned on Thursday will mature in 2032 with a coupon rate of 0.35 per cent, while the other will mature in 2050 with a coupon rate of 1.5 per cent.
But market yields of 2.2 per cent to 2.7 per cent were notably higher than the last time the debt agency held an auction in May, reflecting the shift in dynamics in international debt markets since central banks began raising interest rates this year to cool soaring inflation.
Bond yields, which rise as their price falls, have been climbing across Europe in recent months, pushing up borrowing costs for governments.
Against a backdrop of red-hot inflation, investors are anticipating more ECB rate hikes in the offing – potentially as soon as next week when the central bank’s governing council meets to discuss monetary policy – sending down European bond prices and pushing yields up.
The region’s market for high-grade government and corporate debt posted a fall of 5.3 per cent in the month to Tuesday, the biggest drop since the Bloomberg pan-European Aggregate Total Return index began in 1999. The returns were pulled down as bond prices fell as their market rates – or yields – moved, inversely, higher.
The Irish Times reported on Wednesday that the market interest rate on Irish government bonds spiked in August as the wider European bond market posted its worst ever monthly performance.
Euro zone inflation accelerated to a fresh all-time high of 9.1 per cent in August from a year ago, fuelled by a 38.3 per cent surge in energy prices, the European Union’s statistics agency Eurostat said on Wednesday.
Economists at Goldman Sachs and Bank of United States subsequently joined a growing list of financial houses now forecasting that the ECB will raise its key rates by 0.75 of a percentage point at a monetary policy meeting next week.