Cantillon: It is all good news for the NTMA

Sometimes you have to stand back to realise the extraordinary period of low interest rates on international markets. In January the National Treasury Management Agency sold €3 billion of a new 10-year government bond, which matures in 2026, at an interest rate of 1.15 per cent. If you assume the rate of inflation returns to anything like normality in the years ahead then this is literally “money for nothing” insofar as there is a good chance of the rate of interest over the period being below the rate of inflation.

As if that wasn’t low enough, the price of the bond has since risen on international markets, driving its yield, or interest rate, down lower. This is because of a mood of nervousness which has gripped international markets, pushing money out of equities and into perceived safe havens such as US and European government bonds. Yesterday the yield on the same 2026 bond was trading at just over 0.96 per cent. The ECB is expected to continue to loosen monetary conditions, and along with its bond-purchasing programme this is supporting the market.

It is all good news for the NTMA. The agency is due to have a bond auction next week – its only fund-raising during the quarter apart from a March issue of Treasury notes, which are very short-term borrowings. Despite its pile of cash the NTMA will be keen to press ahead next week assuming markets conditions remain good, and would surely have planned to raise more funds in the first quarter had it not been for the small matter of the general election.

So far international investors seem to be taking a relaxed approach to the election. As reported here, major investment banks are taking a reasonably sanguine view. But the election will focus attention on Ireland, and domestic factors do make a difference. Look at the gap between what Ireland and, say, Portugal pays to borrow – Portugal’s 10-year bond is trading at around 2.7 per cent.

As a high-debt nation, keeping our bond rates low is vital. If this is lost you can forgot your USC cuts and a lot more.