State raises €5.2bn in surprise return to bond market

THE GOVERNMENT took a major step towards exiting the international bailout by borrowing €4.2 billion in new money yesterday in a surprise return to the bond markets for the first time since September 2010.

A further €1 billion in debt due to be repaid in 2013 and 2014 was pushed out for up to eight years as existing lenders to the State switched into longer-term bonds.

The €5.2 billion raised, well ahead of expectations, lowers the State’s first repayment hurdle after the EU-IMF bailout ends – an €8.2 billion Government bond falling due in January 2014.

This eases pressure on the Government and reduces the likelihood that the State will require further emergency loans when the bailout ends in December 2013.

In a sign of confidence in Ireland’s economic recovery, international lenders provided an estimated 60 per cent of the money raised by the Government’s debt manager, the National Treasury Management Agency, in the sale.

Irish investors were said to have dominated the lenders switching 2013 and 2014 bonds for longer-dated 2017 and 2020 bonds.

The money was borrowed at a weighted average rate of 5.95 per cent as the NTMA took advantage of strong interest during private contacts with investors over the past week as it tested the appetite for the longer-term bonds.

The rate is above the 3.5 per cent the troika of lenders charges the State for loans but is below the 7 per cent level that forced the country to seek an outside financial rescue.

Fianna Fáil finance spokesman Michael McGrath TD said: “The funds raised have come at a high price”.

The Government borrowed €3.9 billion at a rate of 5.9 per cent on a new five-year bond and a further €1.3 billion on an existing bond due in 2020 at 6.1 per cent.

Minister for Finance Michael Noonan said the strong demand and the €4 billion of new money from bond investors was a “significant step for Ireland in regaining our economic sovereignty”.

John Corrigan, the chief executive of the NTMA, said it had covered a significant portion of the bond falling due in January 2014 “which up until now had been seen as a challenging ‘funding cliff’”.

This bond repayment was considered the biggest obstacle to Ireland exiting the bailout programme, said Owen Callan, a bond dealer at Danish bank Danske.

“It now seems to be taken care of to a large extent,” he said.

Market observers expressed surprise at the amount borrowed, saying that raising between €2 billion and €3 billion would have been regarded as a strong result.

Department of Finance secretary general John Moran said the sale showed “the results of all the hard work that has been done, not just by us, but frankly by everyone in the country in terms of the sacrifices that have been made”.

Concluding a deal to reduce the the bank bailout costs was important, he said, as it “wouldn’t be sustainable” to borrow at yesterday’s interest rates in the long term.

The sale came as European Central Bank president Mario Draghi hinted strongly that the ECB would start buying sovereign bonds again, lending to Spain and Italy to ease their soaring borrowing costs.

Mr Draghi’s pledge to do “whatever it takes” to save the euro boosted the currency against the dollar and reduced interest rates on Spanish and Italian bonds.

All European markets ended the day higher. Spain’s borrowing costs for 10-year money fell below the 7 per cent level that tipped Ireland, Portugal and Greece into bailouts.

The NTMA plans to assess the interest in another bond sale in September after the holiday period.

The bond sale reduces funding requirements for 2013 and 2014 from €31.8 billion to €26.5 billion.