Extremely low Irish borrowing costs unlikely to tempt NTMA

Irish bond yields fell to a record low yesterday, but the National Treasury Management Agency is unlikely to capitalise on the slump in its borrowing costs in the next few months, allowing investors to digest the implications of Brexit instead.

The market interest rate, or yield, on Ireland’s 10-year government bonds, a benchmark for investors assessing the country’s creditworthiness, fell to 0.586 per cent for the first time yesterday.

Meanwhile, Central Bank governor Philip Lane said the uncertainty over Britain’s vote to leave the EU would persist for some time and that resulting delays in consumer spending and investment were of immediate concern.

In a note to staff, Mr Lane said the bank had already begun to revise its macro-economic forecasts and that the ultimate impact on Ireland would be influenced by whatever post-Brexit settlement Britain reached with the EU.

“The negotiation between the UK and the EU is going to take a considerable period of time and energy, and uncertainty will persist for some time,” the note said.

“Elevated uncertainty about the implications of the vote for the UK and euro area economies is an immediate concern, generating delays in investment plans and purchases of consumer durables.”

The rate on government bonds is down from 0.825 per cent last Friday, and an all-time high above 14 per cent during the financial crisis in 2011.

Traders said the decline in bond yields, in line with trends in other peripheral European markets, was driven by rising expectations that the European Central Bank and other central banks will do more to stimulate financial markets as they grapple with the UK's shock decision to quit the EU.

On edge

However, they warned that investors could become skittish and drive up yields at any stage, as markets remain on edge after the vote.

Ireland’s economy is seen as one of most exposed to Brexit.

"We're very surprised by the market reaction, but the soothing noises from central banks globally is having a positive impact on investor sentiment," said Ryan McGrath, head of fixed-income strategy at Cantor Fitzgerald in Dublin.

“The market is pretty confident that the ECB will do whatever is needed to ensure there’s not another liquidity crisis.”

Two months

Still, he believes the NTMA will signal tomorrow that it does not intend to sell bonds for at least two months as the agency releases its bond-auction calendar for the third quarter of the year.

Anders Moller Lumholtz, an analyst with Danske Bank in Copenhagen, sees the NTMA holding off until September at least.

“I think it is likely that we will see the NTMA in the market again in the second half with another €1 billion [bond sale],” said Mr Moller Lumholz, adding that there was an equal chance as to whether this would happen in September or October.

Ireland has raised €5.6 billion from selling bonds so far this year, compared to a target of between €6 billion and €10 billion for the whole of 2016.

Irish shares

Meanwhile, as European leaders met without Britain for the first time in 40 years to begin policy-making in the aftermath of Brexit, Irish shares continued to rebound yesterday – in line with markets globally – from a sharp sell-off immediately after the UK referendum.

The Iseq index rose 2.6 per cent to 5,588.5 points, following on from a rally on Tuesday.

Among Irish advancers, Permanent TSB added 5.3 per cent, CRH gained 5.4 per cent and Hibernia Reit edged 2.8 per cent higher.

– (Additional reporting, Reuters)