NTMA linked with bond market option

Tue, Feb 28, 2012, 00:00

SPECULATION IS growing that the National Treasury Management Agency (NTMA) will take advantage of greater liquidity as a result of the ECB’s second long-term refinancing option (LTRO) to consider another move into the bond markets.

Cathal O’Leary, a fixed income analyst with NCB Stockbrokers, said that Ireland’s 2013 bonds are the most likely target of a second switch, while in its morning note, Glas Securities said the 2013 bond could be swapped into either the 2015, or 2017 bond.

Banks around Europe will today bid for funds from the ECB’s LTRO. Allocation is due to take place tomorrow, with an expected allotment size of about €500 billion, though some estimates go as high as €1 trillion.

The first LTRO took place last December when almost €500 billion was placed with more than 500 banks across Europe.

Tomorrow’s allotment is expected to shore up the banking sector across the region, offering banks easy access to cheap funds.

“The first operation back in December not only helped to ease bank funding stress, but it also helped to improve sentiment in general towards the euro zone and saw an easing of the pressures in European sovereign bond markets,” Ulster Bank economist John Fahy said yesterday.

The cost of bank funding in Europe has continued to decline over the past year, with the three-month Euribor – the rate at which banks typically borrow money – dropping for the 49th day yesterday. It is now at its lowest since January 2011 at 0.997 per cent, and is below Europe’s key interest rate for the first time in 13 months.