State raises €500m in markets


The Government has raised €500 million in a debt auction today, in its first sale of Treasury bills since before the State sought a bailout.

The auction met its target, and had a yield of 1.8 per cent and a bid to cover ratio of 2.8.

The head of the National Treasury Management Agency John Corrigan said three or four more auctions of short-term debt may be held before the end of 2012, ahead of a return to longer-term markets early next year.

Speaking on RTÉ Radio One this afternoon, Mr Corrigan said the "wider mood music" has improved significantly since a summit of EU leaders held last week.

The NTMA may also consider selling six-month bills following today's successful debt auction.

The agency also wants to sell a bond with a duration of two years and over, he said.

Analysts described the auction results as "positive", and Minister for Finance Michael Noonan said it was an important step for the economy.

"This morning’s successful auction of three-months treasury bills by the NTMA was a very important milestone on Ireland’s continuing path to recovery," he said. "The yield on the bonds at 1.80 per cent was very competitive to its peer group, market commentators were agreed that any level lower than 2 per cent would be considered a good result, and demand was strong amongst investors."

The Irish auction was in contrast with Spain's debt sale, which also took place today. Most foreign investors are shunning Spain's auctions, even though Madrid has avoided going to international lenders for a full sovereign bailout.

The Spanish Treasury paid the highest rate in over seven months to borrow 10-year funds, suggesting the positive effect of last weekend's agreement by euro zone leaders is wearing off.

Altogether, Madrid auctioned €3 billion in three maturities of bonds. It sold €747 million in the benchmark 10-year bonds at an average yield of 6.43 per cent, up from 6.044 per cent at the last such auction on June 7th.

Ireland's return to financial markets was conducted by the NTMA. It has not disclosed the exact break-down of domestic and international lenders who purchased the treasury bills.

Owen Callan, a senior dealer at Danske Markets, one of the primary dealers in Irish government bonds, said that there was only a “very small participation” by the domestic banks and insurers in the auction given the low yield, or interest rate, being offered to lenders. He estimated that the international investors accounted for between 90 and 95 per cent of the borrowings raised.

Mr Callan said that the yield on the t-bills compared with about 1.70 per cent for Italy and 1.85 per cent for Spain on their equivalent treasury bills.

While not a "full" market return, the auction - the first time since September 2010 – was a "small but necessary step towards regaining full market access and avoiding a need for any additional troika support in 2014", Danske said.

On Tuesday, the NTMA announced it would seek to tap financial markets by issuing IOUs known as treasury bills. The bills will have to be repaid in just three months.

"Every aspect of the t-bill auction is better than expected. The total amount of bids is very impressive and the yield of 1.8 per cent is not only lower than the grey market before the auction but is approximately where Spanish letras (treasury bills) are trading," said Credit Agricole rate strategist Peter Chatwell.

The NTMA plans to increase gradually the amounts it raises at each successive auction over the remainder of the year and into 2013. The repayment duration of the IOUs it issues will also be lengthened.

Typically bonds of five- and 10-year maturity account for most government debt in developed countries, with short-term treasury bills accounting for a much smaller share.

</p> <p>The success of the Government’s plan to wean itself off bailout funding will depend to a considerable degree on the performance of the public finances this year and next.</p> <p>New figures from the Department of Finance, published earlier this week showed the fiscal position is on track to meet targets set out in last December’s budget and under the terms of Ireland’s EU-IMF bailout.</p> <p>The exchequer returns showed the deficit between public spending and revenues narrowed in the first half of the year, falling from €10.8 billion in January-June 2011 to €9.4 billion in the same period this year.</p> <p>"Irish sovereign debt has been on a roll. The rally dates back to the middle of last year when foreign investors started taking a much more favourable view of Ireland's adjustment programme," said Nicholas Spiro of Spiro Sovereign Strategy.<br/> <br/> "However Ireland is hardly out of the woods. Domestic demand continues to contract, the fiscal deficit was 13 per cent of GDP last year and the economy is expected to more or less stagnate this year."</p>