Ireland was back in the syndicated bond market yesterday for the first time since January 2010, raising €2.5 billion from predominantly international investors at yields not seen since before the bailout programme of December 2010.
With a total order book for €7 billion, the National Treasury Management Agency stuck to its plan by raising €2.5 billion in a “tap” of the 5.5 per cent 2017 bond. The bond was priced at €109.45 and the cost of borrowing to Ireland was 3.316 per cent. In January 2010, Ireland funded a 2104 bond at 3.1 per cent.
Minister for Finance Michael Noonan said the issue was a “very welcome and positive development”, noting that Ireland’s efforts to return the economy to growth “are having a very positive impact on financial markets’ perceptions of Ireland”.
The deal was very well perceived in the markets, with analysts pointing to the low cost of funding. The average cost of funds under the EU-International Monetary Fund programme is 3.5 per cent.
“For someone like myself, who was sceptical of Ireland getting back to full market access, the NTMA has done a good job,” said Dermot O’Leary, chief economist with Goodbody Stockbrokers. He added that Ireland was now in a “ pretty comfortable” position with regards to funding this year and next.
UK predominance
According to the NTMA, over 200 investors submitted bids for the deal, with 13 per cent taken up by domestic investors and 87 per cent by overseas investors, the majority of whom were based in the UK.
The deal means the “funding cliff” the agency faced due to the redemption of a January 2014 bond has been resolved, while it opens the possibility for Ireland to access the European Central Bank’s bond purchase Outright Monetary Transactions programme.
However, while there is no doubting the remarkable turnaround in cost of borrowing, the difference between Ireland’s cost of funding and that of Germany remains elevated.
Speaking at the Bank of International Settlements in Basel, Switzerland, yesterday, governor of the Central Bank Patrick Honohan said the spreads “reflect a credit-risk premium that is poor reward, so far, for what has been a sizable fiscal adjustment effort”.
Pre-bailout, in January 2010, the difference between Germany’s cost of funding and Ireland’s was of the order of 100 basis points or 1 per cent. But yesterday it was as high as 290 basis points. Indeed the Netherlands was also in the market yesterday, borrowing €3.2 billion of three-year notes at a rate of 0.318 per cent.
And a full return to the capital markets remains some way away. According to Padraig Garvey, head of developed debt and rates strategy at ING in Amsterdam, this would require that Ireland engage in a regular auction schedule, likely initiated by a new benchmark issue.
“The test then would be to see whether there was persistent and structural demand for Irish bonds,” he said. However, he added that “the prognosis is quite good based on the current market discount”.
