Can Ireland just keep borrowing at negative interest rates?

Smart Money: Ireland sold €5.5bn debt this week at a negative rate. What does this mean for the State’s finances?

The idea of borrowing money at negative interest rates is hard to get your head around. Yet Ireland again sold longer term debt this week at a negative rate, with the National Treasury Management Agency raising ¤5.5 billion at an interest rate of minus 0.257 per cent for a term of over 10 years. What does this mean for the State’s finances as we wrestle with the cost of the pandemic and face other longer-term bills in areas like housing, health, the environment and pensions? Here are seven questions.

1. How does it work when a State borrows at a negative interest rate?

The State has issued debt with a face value of €5.5 billion at a slight premium. To be exact, it will take in €5.654 billion, which it will receive from the investors on January 12th. In mid-October 2031, the NTMA will repay these investors at the face or par value, paying them €5.5 billion. The difference - just under €154.5 million – reflects the negative interest rate being accepted by the investors. They are getting back a little less than they lent.

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