NTMA takes surprise plunge into the bond markets

The first sale of long-term bonds since September 2010 came after testing appetite among investors

IF THE Government’s recent €500 million borrowing of three-month loans on treasury bills was dipping a toe in the bond markets again, yesterday’s €5.2 billion bond sale and debt swap was the equivalent of a dive bomb into the deep end.

That’s not to say the National Treasury Management Agency closed its eyes, jumped and hoped for the best – far from it. The State’s debt-management agency had worked the phones over the past week talking to the holders of Government bonds due in 2013 and 2014 and potential buyers of new Government bonds that it has been wooing over recent months.

NTMA chief executive John Corrigan and his debt managers took the temperature and saw there was enough interest to issue a new five-year bond and sell it and an existing eight-year bond to new money lenders and existing holders of Irish Government debt.

Rather than go through a costly syndicated bond issue, where the NTMA pays big fees to investment banks to take up any bonds that investors don’t want, the money was raised by what’s more informally known as “a tap”.

It was unconventional but it worked as it gave the agency greater control on the first long- term bond sale since the EU and IMF stepped in to bail out the State in November 2010. The method chosen also had the advantage of bringing smaller players whose interest had been piqued by the Irish recovery story.

The agency offered investors a specific yield or interest rate – this made the first sale of long-term Government bonds since September 2010 relatively straightforward and cheap to run.

The agency had, in effect, carried out its own syndication work by ringing around investors over the past week to see whether they would be interested.

The rate on the new 2017 bond was more generous than the rate on the 2020 bond. Investors were offered a yield of 5.9 per cent on the five-year bond, which compared favourably with the 5.15 per cent on offer yesterday in the secondary markets on 2016 State bonds.

The NTMA couldn’t exactly skin the investors on the first sale to the markets in 22 months.

It was no surprise then that most of the €5.2 billion was raised on the 2017 bonds – lenders gave €3.9 billion on the five-year loans and €1.3 billion on the eight-year.

The two most positive aspects of yesterday’s borrowing activity was that €4.2 billion of new loans came into the State’s coffers and foreign investors accounted for 60 per cent of the lenders.

Existing bond investors swapped €1 billion of 2013 and 2014 bonds for 2017 and 2020 bonds. The NTMA had already swapped €3.5 billion of the January 2014 bond so it couldn’t go much further.

The amount raised was way ahead of market expectations.

“It’s a major positive shock,” said Anthony Childs, a bond salesman at stockbroker Davy, one of the primary dealers in Irish Government bonds. “I would say it’s twice what people expected.”

US and UK “real money” investors were said to be among the buyers. Owen Callan, senior bond dealer at Danske Markets, another Government bond dealer, said their London and New York offices “took a lot of orders from the big asset managers as well as some good interest from the Scandinavian pension funds”.

The issuing of a new five-year bond gives the Government flexibility to go out and raise another chunk of debt.

A European deal on a reduction in the bank bailout costs in the autumn would open a window of opportunity for another sale.

Raising €5 billion towards the repayment of the €8.2 billion January 2014 bond improves the Government’s chances of exiting the EU-IMF bailout programme.

Still, yesterday’s plunge must be repeated a few more times – and the cost must come down.