State debt agency sells target-beating €4bn in bonds

The National Treasury Management Agency (NTMA) completed more than 40 per cent of its minimum targeted debt issuance this year through the sale of €4 billion of bonds.

The State debt office’s first ever sale of 20-year bonds through a syndicate of banks and brokers was initially expected to raise between €2 billion and €3 billion. However, the NTMA decided to issue more after demand from investors came to almost €11 billion.

The agency aims to raise between €9 billion and €13 billion through bond sales this year. The new bond is expected to carry an interest rate, or coupon, of 1.73 per cent.

“Strong investor appetite within the order book enabled an increase in the transaction size to €4 billion, further strengthening our funding position,” said NTMA director of funding Frank O’Connor.

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The ultra-low interest rate attached to the bond is largely down to the European Central Bank’s €2.3 trillion quantitative easing programme, which started two years ago and involves buying euro zone state and company bonds in order to boost inflation and growth, and help provide access to cheap credit for businesses and households.

Interest cost

The interest cost expected to be attached to the new 20-year bonds is less than the 1.8 per cent annualised rate demanded by investors to lend to the Republic for just three months in July 2012, when it returned to public debt markets for the first time since the 2010 international bailout.

Still, new data from the ECB on Tuesday showed the value of Irish Government bonds bought under quantitative easing fell by a third last month to €648 million compared to November and the monthly average between April and November.

The decline comes after the ECB governing council failed in its early December meeting to ease a restriction that it can buy no more than 33 per cent of eligible bonds from a single state and 33 per cent of any individual bond in issue.

Market sources said at the time that the headroom for additional purchases was tight, as the ECB and euro zone central banks held more than €31 billion of Irish Government bonds. This week’s bond sale will go some way towards easing the limitation as the overall pool of Irish bonds eligible for the programme increases in size.

The NTMA's bond sale is being managed by a syndicate of banks, comprising Barclays, Cantor Fitzgerald, Danske Bank, HSBC, JP Morgan and Morgan Stanley. Davy in Dublin is understood to be a co-manager of the transaction.

Some 97 per cent of the bonds were bought by overseas investors, led by Germany and Austria, at 31 per cent, and the UK, at 25 per cent.

Ireland has typically been among the first European sovereigns to hit the bond markets in January in recent years.

Elsewhere, France plans to sell 50-year bonds this week and is targeting the sale of 15- to 25-year "green bonds" later this month. Spain plans to issue as much as €4.75 billion of debt on Thursday that is due to mature between four and 29 years from now.