Ireland raises 10-year debt at record low

Ireland’s debt agency sold €750 million of bonds yesterday at a record low interest rate as investors shrugged off political uncertainty to focus on the European Central Bank’s ongoing support for government debt markets.

The National Treasury Management Agency sold the 10-year notes at a yield, or interest rate, of 0.817 per cent in its first such auction since February's inconclusive general election. This compares with a 1 per cent rate attached to similar bonds in mid-February.

While some analysts had feared that demand for the bonds would be muted as the country remains without a government, the NTMA received bids from investors for 2.4 times the amount of debt on offer. Still, this is below the median ratio of 2.7 times for the previous seven auctions.

“Ireland’s supportive economic fundamentals and ECB interventions have more than cancelled out any concerns around the domestic political situation,’’ said Philip O’Sullivan, an economist with Investec in Dublin.

The NTMA has now sold €4.75 billion of bonds so far this year against its target of between €6 billion and €10 billion.

The agency managed to sell the bonds just before euro area bond yields began to rise after the European Union’s statistics office revealed that a dip in consumer prices in February proved short lived. Inflation was revised to zero for March from an initial estimate of a 0.1 per cent decline and a 0.2 percent drop in February.

This takes some pressure off the ECB, which last month cut its main interest rate to zero and upped its government bond-buying spree to €80 billion a month to boost the euro area’s flagging economy and inflation. Still, inflation remains well off the ECB’s target of close to 2 per cent.

The yield on Ireland’s 10-year bonds nudged up to almost 0.85 percent from a low of just over 0.80 percent during the course of the session. Yields on similar bonds from Germany to Italy also rose.

"The strength of the auction continues to underline the confidence international investors have in the Irish recovery," said Colm Ryan, head of the fixed-income desk at Goodbody Stockbrokers.

The European Commission estimates Ireland's economy, as measured by gross domestic product, will grow by 4.5 per cent this year - almost three times the rate of the broader euro zone. In addition, the ECB is set, under its bond-buying programme, to buy more of the country's debt than the NTMA intends to issue this year.

Still, concerns over the hiatus in forming a government and the prospect of the country’s biggest trading partner, the UK, exiting the EU following a referendum in June may return to the fore in investors’ minds at any time, according to analysts.

“The lack of government, while not a factor in the result seen today, may begin to erode investor confidence over the longer term, as we begin to formulate thoughts around the budget, and the ability of any budget to get passed in parliament,” said Mr Ryan.