State €5.5bn bond sale one-third of borrowing to cover Covid crisis

The National Treasury Management Agency (NTMA) sold a greater-than-expected €5.5 billion of 10-year bonds on Tuesday, covering a third of the minimum amount of borrowings the State plans to raise in 2021 to deal with the coronavirus crisis.

The deal secured more than €40 billion of orders, said the agency. The bonds were priced to carry a record negative market interest rate, or yield, of minus 0.257 per cent, for an Irish 10-year Government deal. Rates below zero mean investors are paying the borrower to take their money.

“This is an encouraging start to our 2021 issuance programme and demonstrates the continued strong demand from a broad investor base for Irish sovereign debt,” said agency director of funding and debt management Frank O’Connor.

The negative rates reflect efforts by the European Central Bank (ECB) to keep euro-zone borrowing costs low at a time when states are borrowing heavily to deal with the Covid-19 crisis.

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The agency had been expected to raise between €3 billion and €4 billion when it announced the planned sale on Monday. It plans to raise between €16 billion and €20 billion in the bond markets in 2021 to cover a budget gap caused by the Government’s response to Covid-19 and potential fallout from Brexit, even after the UK reached a Christmas Eve trade deal with the EU. The agency tapped the markets for €24 billion last year at an average interest rate of 0.02 per cent.

The Republic joined Italy and Slovenia on Tuesday in launching the first European sovereign bond deals of the year, ahead of what is shaping up to be a particularly busy month for debt issuance. The NTMA has been among the first national agencies to venture into the bond markets every year for much of the past decade.

Funds considered vital

Euro-area governments will raise more than €1 trillion of debt this year, according to analysts at ING Groep. The funds are considered vital as they battle the economic fallout of the pandemic amid a tightening of restrictions across Europe.

Thanks to the ECB’s bond-buying programme, demand will more than offset the extra supply and continue to support a blistering bond rally that has pushed borrowing costs to all-time lows. Bond prices have an inverse relationship to interest rates.

Meanwhile, the Department of Finance revealed on Tuesday that the exchequer deficit – the difference between spending and tax receipts – came to €12.3 billion last year, narrower than the €16.7 billion shortfall estimated when Budget 2021 was announced in October. The department forecast that the deficit for this year would amount to €17.6 billion.

"When setting out Budget 2021 in October, the Irish Government decided to assume both a hard-Brexit and Covid remaining an issue for most of the year. This was sensible. It included €2.1 billion in contingency supports and a €3.4 billion recovery fund in its estimates," said Dermot O'Leary, an economist with Goodbody Stockbrokers.

“While a no-deal Brexit has clearly been avoided, the latest surge in Covid cases to record levels makes a prolonged third lockdown an inevitability.” – Additional reporting, Bloomberg