ECB banker hails Irish €5bn bond sale

Governing council member Panicos Demetriades says success brings Ireland closer to ECB bond-buying programme

ECB vice-president Vitor Constancio with the bank’s president Mario Draghi. Photograph: Ralph Orlowski/Bloomberg

ECB vice-president Vitor Constancio with the bank’s president Mario Draghi. Photograph: Ralph Orlowski/Bloomberg

Fri, Mar 15, 2013, 00:06

Ireland’s issuance of its first long-term bond since being bailed out is an important step towards qualifying for help from the ECB’s bond-buying programme, Eu ropean Central Bank governing council member Panicos Demetriades said.

The Cyprus central bank governor said euro zone economic recovery was holding to its projected path and the Italian election stalemate had not increased risks to growth.

His comments came as Spain held an unscheduled auction of 10-year bonds following the success of the Irish transaction.

The Spanish treasury sold €803 million of paper due in 2029, 2040 and 2041 – less than recent issues of the same bonds but at lower yields. No target amount had been set for the auction.

“It looks like a decent set of auction results,” rate strategist at Rabobank Lyn Graham-Taylor said. “The size was roughly as anticipated and obviously it was always going to go well given that it looks like this was a request from primary dealers.”

Less upbeat
Other analysts were less upbeat.

“Given that Spain issued bonds with longer maturity they had to give investors some discount and there was not a strong demand for those bonds. It shows that Spain can outperform Italy but it’s not easy even for them to issue long-dated bonds,” said Alessandro Giansanti, rate strategist at ING. Ireland on Wednesday issued its first benchmark 10-year bond since its EU/IMF bailout, a landmark on its route to becoming the first bailed-out euro zone country return to full market funding.

With an order book around €13 billion and 400 accounts bidding, bond analysts Glas noted demand was “impressive”, with 82 per cent being placed internationally.

The yield on the 10-year paper, which was within striking distance of 14 per cent back in July 2011, was 4.15 per cent at the auction.

The debt sale takes Ireland closer to meeting the rules for the ECB’s yet-to-be-activated bond-buying programme, dubbed Outright Monetary Transactions (OMT), but not fully there, Mr Demetriades said.

‘Important step’
“It is an important step toward fulfilling the conditions for OMT,” he said, sitting by a coffee table in his office.

“But for full market access, one needs to look at the entire broad range of maturities.”

Mr Demetriades dismissed the view that the ECB might want to keep the programme – which has imposed market calm since it was unveiled in September – exclusively for large countries, especially Spain and Italy.

“We don’t design programmes for specific countries. OMT was not designed for large or small countries,” the former professor said.

“Once a country fulfils the requirements of the programme, then its size shouldn’t work against it or for it.”

Holger Schmieding, an economist at Berenberg Bank said yesterday Ireland should offer to exit the current bailout programme before it is due to expire at the end of the year in return for an extension of its loans.

“For the German Bundestag, authorising an ESM credit line to Ireland to replace the remaining tranches of the current support programme would be much easier than to simply grant an Irish request for more generous terms on the official support loans,” he said in a note yesterday.

“Ahead of the German election, chancellor Merkel could celebrate an early exit of Ireland from the EU-IMF credit programme as a clear success. ’’

In a note to clients, Irish stockbroker Goodbody said Ireland’s bond sale “opens up the possibility” that the country may not draw down the remaining €11 billion of bailout funding and “instead fund it in the market”. – (Reuters / Bloomberg)