Coupons or fixed interest rates on two new bonds being issued by the National Treasury Management Agency (NTMA) in its bond switching programme announced yesterday were broadly in line with market expectations.

The 2007 bond will carry a fixed coupon of 4.25 per cent while the coupon on the 2013 bond will be 5 per cent.

The yields or returns to investors available on the new bonds will not be apparent until today when the NTMA presents the terms it will offer holders of two existing bonds to switch into the new ones.

The NTMA will offer holders of the existing 3.5 per cent Treasury Bond 2005 special terms to switch their funds into the new bond maturing on October 18th, 2007 and holders of the existing 4 per cent Treasury Bond 2010 will be offered terms to switch into the new bond maturing on April 18th 2013.

No new funds are being raised through the switching programme. The existing bonds are being replaced because, with less than five and 10 years to maturity respectively, their remaining duration is too short to retain benchmark status.

In setting the terms for the buy-back of the 2005 and 2010 bonds, the NTMA will want to persuade the holders of much of the existing €12 billion (£9.5 billion) outstanding on these bonds to switch into the new 2007 and 2013 bonds. It needs to ensure that each of the new bonds raises a minimum of €5 billion by next September so they can be quoted on the European electronic Euro MTS market.

The quotations would mean a higher profile for the NTMA, which plans bond auctions to raise €500 million to €700 million each month between February and November and to improve liquidity for investors.

Between the switching programme and the monthly auctions the NTMA expects to be in the MTS market by June when it will have 90 days to get the amounts in the bonds up to the required €5 billion level.

If the switching programme is successful, investors remaining in the existing 2005 and 2010 bonds may find their investments have become more illiquid and therefore harder to sell.

Coupon rates are set based on the yields or returns investors expect which is influenecd by returns available in other euro zone countries.

That yield is determined by the price the investor pays for the bond and the coupon or fixed rate the bond carries. Bonds are issued at a nominal price with a fixed coupon rate.