'Investor inquiries' into NTMA bonds

THE NATIONAL Treasury Management Agency plans to issue amortising bonds in the coming days in a bid to meet demand from a potential new customer in the shape of Irish pension funds.

The issue is part of a €3-€5 billion programme that will see the agency sell both amortising bonds and inflation-linked bonds to investors over the next 18 months.

Amortising bonds, which make equal annual payments of capital as well as interest over their lifetime, will be packaged into sovereign annuity products sold by pensions providers, which will then market the products to pension funds seeking a fixed cash flow.

The NTMA said yesterday it had received “investor inquiries” in relation to the bonds, which will initially be issued with maturities of 15, 20, 25, 30 and 35 years.

Further details will be announced at the time the bonds are issued. It is likely that the imminent issue will come in shy of €1 billion, and will be the first of several such issues.

The NTMA may opt for a “tap” method of offering the bonds, whereby it announces the size and price to market participants and awaits orders, rather than negotiating the price. If demand exceeds the size of the issue, orders may be scaled back proportionally.

It is hoped the higher interest rates paid on riskier government bonds, such as those issued by Ireland, will appeal to defined-benefit pension trustees trying to drag company pension schemes out of deep deficits. Buying annuities has become increasingly expensive for pension funds in recent years because of the low yield from German bonds, to which annuities are usually linked.