Success of €2.5bn bond sale tempered by high cost
Ireland took another important step towards regaining its fiscal sovereignty when it borrowed €2.5 billion in the bond markets yesterday. The deal, which was almost three times over-subscribed, was the first syndicated deal from the National Treasury Management Agency since before the EU-International Monetary Fund bailout programme of December 2010.
However, Central Bank governor Patrick Honohan expressed concern at the cost of borrowing imposed on Ireland.
The NTMA “tapped” the 5.5 per cent 2017 bond by opening it up to additional investors, borrowing at 3.3 per cent. This compares favourably with the average cost of bailout funds, of 3.5 per cent.
However, while the deal may have been broadly welcomed, concerns remain about the differential in borrowing costs between Ireland and risk-free countries such as Germany.
Mr Honohan yesterday drew attention to this, when he argued that the markets were not rewarding Ireland for its “sizeable fiscal adjustment effort”.
The spread, or difference in yields, between Ireland and Germany remains elevated at about 300 basis points, or 3 per cent. This compares with a spread of about 100 basis points in January 2010.
Meanwhile, rating agency Fitch has predicted that Irish house prices could fall by a further 20 per cent.