NTMA borrows €1.5bn in bond issue

IRELAND SUCCESSFULLY borrowed €1.5 billion in a scheduled auction of Government bonds yesterday, a day after credit rating agency Moody’s downgraded the country’s sovereign debt.

The National Treasury Management Agency (NTMA) issued €750 million of the 4.6 per cent Treasury Bond 2016 and €750 million of the 5 per cent 2020 bond. The average yield on the benchmark 2020 bond was 5.537 per cent compared to the 4.688 per cent paid in April, the last time the bond was issued.

Bond yields have an inverse relationship to the price of the bond and the higher the yield the lower the price at which the bond is sold.

Like other peripheral euro zone countries, Irish Government bonds have been hovering not far from their recent peak at the beginning of May, during the height of the euro zone crisis.

The average yield for the 2016 bond fell slightly to 4.496 per cent from 4.521 per cent from the last comparable auction in June.

The move was seen as positive by analysts, with the downgrade by Moody’s having little impact.

“Particularly in terms of the 2020 bond, spreads relative to Germany were inside those at the time of the June auctions,” Brian Devine of NCB Stockbrokers said. “The big move in Irish spreads relative to German occurred in the period May to June, since when spreads have fluctuated around the 260-280bps level at the 10 year maturity.”

Alan McQuaid of Bloxham said that, as with Spain and Portugal, the results of the auction shows that investors are prepared to buy up the bonds, but require an elevated yield to do so.

Yesterday’s auction also saw increased demand from investors. The 2016 bond attracted a bid-to-cover ratio of 3.6, compared with 3.1 in June, while investors bid for three times the 2020 debt, unchanged from April.

The NTMA has completed 90 per cent of its long-term borrowing programme of €20 billion for 2010, with €16.5 billion raised in the bond market so far this year. According to the national debt agency the exchequer is fully funded into the second quarter of 2011.

Elsewhere, Spain and Greece successfully completed short-term fundraising yesterday, easing concerns about a possible sovereign debt crisis in the peripheral euro zone countries.

Greece sold €1.95 billion of 13-week bills, its second sale in a week, raising money to pay €4.5 billion of short-term debt maturing this month.

Spain sold €6 billion of bills, the maximum target for the auction, with increased demand pushing down borrowing costs. Twelve-month and 18-month securities were sold. €4.25 billion of 12-month bills were sold at an average yield of 2.221 per cent, compared with 2.303 per cent at the last sale on June 15th. Demand was 1.95 times the amount sold, versus 1.49 times in June.

Hungary, which is not in the euro zone, sold less than planned at its debt sale, selling 35 billion forint (€122 million) of three-month treasury bills, compared with the 45 billion forint planned.

The yield premiums investors demand to hold the debt of Ireland, Greece and Spain over benchmark German debt fell.

The spread between Irish and German 10-year bonds fell seven basis points to 277bps. The spread between Spain and Germany narrowed five basis points to 171bps, the least in a month, while the Greek spread with bunds also declined slightly. – (Additional Reporting: Reuters)