Irish bonds fall as market eyes major euro bond sale

Ireland’s benchmark 2026 bonds fell in early trading on Tuesday, sending the market interest rate on the notes higher, on mounting speculation that the State’s debt agency will launch a multibillion euro bond sale imminently.

The market interest rate, or yield, on the bonds rose 0.13 percentage points to 0.87 per cent in early trading to where the bonds were trading on December 19th. The National Treasury Management Agency (NTMA) has typically been among the first euro area debt offices in recent years to issue a benchmark bond, through a syndicated deal organised by a group of banks and securities firms, in January.

The movement in Irish bonds indicates "the market appears to be set up for a syndicated deal from the NTMA as has been the case in the first week in January for the past couple of years", said Eamonn Reilly, a senior dealer with Davy in Dublin.

Government or corporate bond yields often rise if the market anticipates that the issuer is planning to sell fresh debt. Sometimes investors decide to sell some of the issuer’s existing debt to free up funds to buy the new bond.

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France hit the ground running on Tuesday by announcing it had hired banks to sell bonds which will mature between 15 and 25 years from now.

The NTMA, which sold bonds in the first week of the new year in 2016, 2014 and 2013 and in the second week in 2015, plans to sell between €9 billion and €13 billion of debt this year. The agency must redeem €6.3 billion of bonds that are due in October.

A spokesman for the NTMA decline to comment on the prospect of the agency hitting the markets soon.

Debt maturing

All told, governments of the world’s leading economies have about $7.7 trillion (€7.4bn) of debt maturing this year, with most facing higher borrowing costs as a three-decade bull market for bonds shows signs of running out of steam, according to Bloomberg.

The amount of sovereign bills, notes and bonds coming due for the Group of Seven (G7) nations plus Brazil, Russia, India and China will climb more than 8 per cent from approximately $7 trillion in 2016. The first substantial increase since Bloomberg started collating the data in 2012 is led by China, where $588 billion (€567bn) of expected redemptions represents a 132 per cent jump from 2016.

Money managers including Pioneer Investment Management and Old Mutual Global Investors said they were either bearish or less positive on government bonds as they expect US-led reflation and fiscal expansion to gradually replace monetary policy as a growth driver and push up yields further.

Bonds across the euro zone came under additional pressure as data out on Tuesday showed that inflation was picking up across Germany amid the rising cost of oil and other commodities.

Economic activity

“We do expect higher bond issuance in 2017 as a result of either direct fiscal stimulus or budget deficit slippage,” said Cosimo Marasciulo, Dublin-based head of government bonds at Pioneer.

“This increased bond supply will be a headwind for investors already facing a boost to economic activity and inflation from this increased fiscal spending. Bond valuations are already looking unattractive from a fundamental viewpoint. We think there are dark clouds on the fixed-income horizon.”

The yield on US 10-year bonds has jumped to 2.5 per cent from a low of 1.36 per cent in the middle of last year.

Germany’s 10-year bonds have swung from a negative yield of 0.189 per cent to 0.26, while similar Irish securities have jumped from a record low of 0.32 per cent. Still, the current rate on Ireland’s benchmark bonds, at 0.87 per cent, is well off the 14.2 per cent high set in July 2011, at the height of the financial crisis.

– Additional reporting: Bloomberg