Debt agency to increase borrowing on Government bonds

THE NATIONAL Treasury Management Agency (NTMA) plans to increase borrowing on two Government bonds next week in the face of renewed market turmoil over the sovereign debt crisis.

The NTMA, which manages the Governments debt, said yesterday it would auction a 2016 and 2020 bond.

The NTMA has already tapped the capital markets for more than 80 per cent of the Governments €20 billion borrowing requirement for 2010, with €16.4 billion raised to date this year.

Irish borrowing costs remain high amid concerns the sovereign debt crisis may impede global economic recovery. The spread, or difference between the rate investors demand to hold Irish debt above the benchmark German bond, slipped yesterday slightly to 267 basis points (2.67 per cent).

Details of the latest bond auction, the seventh of its 11 scheduled monthly auctions, coincided with ratings agency Moodys decision yesterday to downgrade Portugals debt rating, exacerbating concerns over peripheral euro zone debt.

Moodys cut Portugals rating by two notches to A1 with a stable outlook, saying the governments financial strength was likely to weaken in the near-term.

The euro responded by falling to a one-week low against the dollar ($1.2523) though it later recovered after Greece sold €1.625 billion of worth six-month bonds at a better rate than it pays to borrow under its EU/IMF rescue fund.

This was the first time the country had returned to the capital markets since it was forced to activate the bailout plan in May to avoid default.

The head of Greece’s debt agency said foreigners accounted for 20 per cent of demand at todays auction of the short-term bonds. “We are happy with the composition of the investor base and participation,” Petros Christodoulou said yesterday.

“Starting from the very short end of the market, this is a thumbs-up for the fiscal policy that has been implemented.”

Foreigners normally buy about a third of this type of auction, he said.

He also said Greece would not roll over bills due in 52 weeks and would issue more shorter-dated bills instead. Investors tend to demand higher returns for longer-dated debt.

“We opted not to pay up the curve to secure term liquidity, given term liquidity is provided by the package money,” he said.

Greece sold €1.625 billion of the securities at a yield of 4.65 per cent, a lower funding rate than the target of about 5 per cent expected by analysts. - (Additional reporting Bloomberg)