Auction paves way for further bill sales

FOLLOWING THE successful issuance of €500 million of treasury bills, the head of the National Treasury Management Agency, John Corrigan, has said three or four more auctions of short-term debt may be held before the end of 2012. He said the agency would re-enter the market for longer term debt towards the end of the year or early next year.

Mr Corrigan said the NTMA is likely to consider issuing two-year bonds and it would probably do so on a syndicated basis, pre-arranging a group (or syndicate) of financial institutions to purchase the bonds.

An interest rate of 1.8 per cent was offered on the €500 million. It was healthily over-subscribed with a bid-to-cover ratio of 2.8.

“Every aspect of the T-bill auction is better than expected. The total amount of bids is very impressive and the yield of 1.8 per cent is not only lower than the grey market before the auction but is approximately where Spanish letras (treasury bills) are trading,” said Credit Agricole rate strategist Peter Chatwell.

Mr Corrigan said there was “strong evidence” that most of the bills had been bought by foreign financial institutions.

Owen Callan, a senior dealer at Danske Markets, said there was only a “very small participation” by the domestic banks and insurers in the auction given the low yield, or interest rate, being offered to lenders. He estimated international investors accounted for between 90 and 95 per cent of the borrowings raised.

The Irish auction was in contrast with Spain’s debt sale which also took place yesterday. The Spanish treasury paid the highest rate in more than seven months to borrow 10-year funds, suggesting the positive effect of last weekend’s agreement by euro zone leaders is wearing off.

Mr Callan said the yield on the Irish T-bills compared with about 1.70 per cent for Italy and 1.85 per cent for Spain on equivalent treasury bills.

In the process of rebuilding investor confidence, Mr Corrigan said he did not want to “hype” last week’s euro zone summit in which agreement was reached in principle to lower the burden of bank debt on those countries where banking crises have been most costly.

However, he was positive that once the details of the commitment are worked out it will be a “game-changer”.

In 2014, when Ireland is scheduled to have exited completely from its EU-International Monetary Fund programme, the NTMA will need to raise almost €20 billion. This will be to cover maturing debt and the still large deficit between Government spending and revenue. Mr Corrigan said his agency was particularly focused on January 2014, when existing debt of €8.5 billion will mature. Fresh debt will have to be raised to repay this.

Minister for Finance Michael Noonan said the “successful auction of three-month treasury bills by the NTMA was a very important milestone on Ireland’s continuing path to recovery”.

While he conceded it was a “small step”, he added: “We will continue to take the necessary measures to fully implement our programme and reduce our deficit in line with commitments.”

Olli Rehn, European Commission vice-president for economic and monetary affairs, said: “Ireland’s successful T-bill auction is an important step in a difficult environment towards a full return to the market. It reflects growing international confidence in Ireland’s strong track record of programme implementation.”