NTMA raises €1.5bn in bond auction

The National Treasury Management Agency (NTMA) has raised €1.5 billion through a bond auction held today,
despite yesterday's move by Moody's to cut its rating.

Cutting it to Aa2, the ratings agency cited the cost of that bank bailout and weak growth prospects for the move, but changed its outlook to stable from negative.

The total bids received for the 4.6 per cent Treasury Bond 2016 and the 5.0 per cent Treasury Bond 2020 amounted to €4.959 billion, more than three times the maximum amount on offer in the auction.

Analysts said the downgrade had little impact.

"Bid cover ratios remained high and spreads relative to Germany were inside those at the time of the June auctions. 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," said NCB economist Brian Devine.

The 2016 bond was sold at an average yield of 4.496 per cent, down from the 4.521 per cent from the auction in June. However, the 2020 bond was sold at an average yield of 5.537 per cent, a higher yield than the 4.688 per cent paid in April.

The NTMA has already raised more than 90 per cent of its target of €20 billion for this year.

Last week, chief executive of the NTMA John Corrigan said the Exchequer is fully funded until the first quarter of 2011, and he would like to have €5 billion of debt due to mature next year funded this year.

However, he said the spread between Irish and German borrowing costs was disappointingly high. This morning, the premium investors demand to hold 10-year Irish bonds over benchmark German debt was at 284 basis points.

"The auction results are quite strong in the context of a downgrade by Moody's. I think the fact that there's strong demand there will give them a lot of comfort," Oliver Mangan, chief bond economist at AIB Global Treasury in Dublin, said.

"The key thing, as we saw last week with Spain that peripheral countries have no difficulty of funding in markets."

Spain, which halted a punishing run in the debt market last week by selling €3 billion of 15-year government bonds, had little problems getting €5.97 billion of 12- and 18-month Treasury bills away, hitting the top end of its range.

Debt sales in Greece, Portugal and Italy also got solid responses from investors last week. Economy minister Elena Salgado said the successful auctions showed signs of confidence returning to markets ahead of
Friday's stress tests.

Europe is testing how 91 banks across 20 countries would cope with another economic downturn and losses on sovereign debt holdings, in an effort to restore confidence after the Greek crisis hit markets and sparked fears the euro zone could unravel.

With sources indicating that Germany's largest listed banks were on track to pass the tests, analysts said a positive outcome on Friday would provide some relief for the borrowing needs of peripheral euro zone members.

"There's such a strong rumour going around that the results are going to be reasonably positive, (hence) the assumption would be that peripheral spreads will come in," Alan McQuaid, chief economist at Bloxham Stockbrokers in Dublin said.

"(But) you always get a knee jerk reaction with these things and there might be a different reaction down the line."

Additional reporting: Reuters