EBS BUILDING society raised €1 billion selling a five-year State-guaranteed bond as Irish banks are expected to sell up to €6 billion in Government-guaranteed bonds over the coming weeks and €25 billion before the end of September.
The building society completed the sale of the bond at a rate of 1.6 per cent above the midswap rate, the European reference point for pricing debt. This is slightly more expensive than the 1.45 per cent over midswap Bank of Ireland paid for a five-year bond last month.
However, the EBS bond sale is the first by an Irish lender since the Greek debt crisis erupted creating volatility in the debt markets. The bond was 1.5 times oversubscribed with 25 per cent of the investors coming from Germany and more than 15 per cent each coming from the UK and Ireland.
The State will earn an estimated fee of €35 million from EBS for the guarantee on the bond.
The building society took advantage of positive investor sentiment toward Government-backed debt after the National Treasury Management Agency (NTMA) completed the second bond auction of the year, raising €1.5 billion.
The NTMA has secured 42 per cent of the State’s €20 billion borrowing requirement for this year.
“Investors are getting a sense that there is a road map that the Government has signed up to and it is definitely improving investors’ disposition towards Ireland,” said a capital markets source.
Dublin-based Glas Securities, which specialises in fixed-income markets, said that Irish banks may sell as much as €6 billion worth of bonds guaranteed by the Government over the coming weeks.
The firm said it expects lenders to sell as much as €25 billion in bonds before the blanket guarantee expires in late September.
The six domestic guaranteed financial institutions have €51.5 billion in debt maturing this year.
The domestic banks are likely to take advantage of the easing of Irish debt spreads compared with those of Greece as the bond markets distinguish between Ireland and the large fiscal deficits of the southern euro zone countries.
German bank Commerzbank said the yield which investors demand for Ireland’s four-year bonds may narrow as much as 0.5 per cent as the Government tackles public finance deficit without external assistance.
David Schnautz, an interest-rate strategist at the bank, said the yield difference, or spread may decline to between 0.8 per cent and 0.7 per cent in two months following the austere budget measures introduced in December.
“Ireland is our favourite pick among the peripherals because they have already implemented their austerity measures and don’t need to rely on any political decisions in the EU,” he said.
