State raises €1bn in bond auction

The Government has raised a further €1 billion on the sale of two bonds, the State’s fund management body the National Treasury Management Agency (NTMA) said today.

It auctioned €700 million worth of five-year bonds and €300 of three-year bonds to bring to €22.7 billion the amount raised in long-term borrowings this year.

The NTMA plans to raise around €25 billion in borrowings this year to bridge a significant gap in the Exchequer finances will seek to secure the remainder through a series of monthly auctions between now and November.

The 2014 bond was sold at an average yield of 3.755 per cent and was 3 times over-subscribed by investors while the 2012 bond was sold at an average yield of 2.57 per cent and investors bid 4.3 times the debt offered.

The difference in yield between Irish and German 10-year bonds – the benchmark measure of financial risk associated with the State – narrowed slightly to 199 basis points (1.99 percentage points), from 2.01 percentage points yesterday.

It remains below its ten-year high of 284 basis points in mid-March. For much of the last decade the average difference between Irish and German bonds has been 22 basis points.

Bloxham economist Alan McQuaid said this appeared to have been the most successful Irish bond auction of the year.

The National Treasury Management Agency raised a further €1bn this morning in what appears to be the most successful bond auction so far this year.

“There is no doubt that investor risk appetite has picked up in recent months which has helped the NTMA” which has done a very professional job.

But he warned against becoming complacent and believing that the country can keep borrowing.

“Quite simply, the huge levels of debt we are building up are unsustainable in the long-run. Ireland is now in a position where it needs to borrow more to fund a larger budgetary deficit, while paying higher costs for this borrowing,” he said.