NTMA to sell €3bn of bonds after ECB stimulus ends

The Republic is set to test the market for the first time since the European Central Bank (ECB) ended its €2.6 trillion stimulus programme last month.

Market sources said that the National Treasury Management Agency (NTMA) plans to raise about €3 billion through the sale of 10-year bonds as early as Wednesday.

The NTMA said on Tuesday that it had hired brokers at BNP Paribas, Bank of America Merrill Lynch, Davy, NatWest Markets and Societé General to manage a benchmark bond sale, without given financial details.

A spokesman for the NTMA declined to comment on the amount the agency is seeking to raise.

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Debt

Ireland, which has for the past five years been the first euro-zone sovereign to raise debt in the early days of January, has been beaten this year by a raft of other states. Austria, Germany and the Netherlands carried out bond auctions on Tuesday, while Belgium marketed €6 billion of notes through a syndicated sale through banks, similar to the Irish process.

Slovenia was the first euro-zone country in the market in 2019, raise €1.5 billion through the sale of long-term bonds on Monday. Meanwhile, Portugal announced on Tuesday that it also planned to sell 10-year bonds this week.

Speculation

The glut of new supply in the market has served to push bond market interest rates – or yields – higher across the board in Europe, even as weak economic data on Tuesday added to speculation that the European Central Bank (ECB) will keep rates at record lowers for longer than expected.

Newly-published figures show that German industrial output fell unexpectedly in November for a third straight month, raising concerns that Europe's largest economy dipped into a technical recession in the final quarter of 2019. Meanwhile, euro-zone economic sentiment decreased "markedly" in December, the European Commission said on Tuesday.

Quantitative easing

The ECB ended new bond purchases last month under its massive quantitative easing (QE) programme, which was initiated in 2015 and designed to boost euro-zone inflation and the wider economy. Still, the organisation plans to reinvest cash it receives from maturing bonds on its balance sheet for an indefinite period of time.

Although the ECB has signalled that its key interest rate will remain at zero until after the summer, financial market investors are now betting that rates will not move until the middle of 2020.

Having raised €17.25 billion last year, the NTMA ended up with about €15.3 billion of cash at the end of 2018 – which will finance the redemption of €15 billion of bonds that fall due this year. It plans to sell between €14 billion and €18 billion of bonds in 2019 to help prefund more future liabilities.

The NTMA highlighted in an updated investor presentation, published on Tuesday, that Brexit remains a key concern for the Irish economy. It said that the prospect of a hard Brexit was now a "distinct possibility," with British prime minister Theresa May unlikely to get her withdrawal agreement through parliament in an initial vote, scheduled for January 15th.