NTMA expected to raise €3bn in new 10-year borrowings

The National Treasury Management Agency (NTMA) is to take advantage of historically low interest rates to raise €3 billion in fresh borrowings for the State. Its move comes as nervous investors move funds away from equities and into Government bonds, pushing long-term interest rates to new lows.

The NTMA said on Wednesday that it is to issue a new 10-year bond which market sources anticipate will raise around €3 billion in new borrowings. The syndicated issue is likely to go ahead on Thursday morning.

The NTMA, led by new chief executive Conor O’Kelly, has said it intends to raise between €6 billion and €10 billion in total this year and given the low level of market interest rates it had been expected to move early into the market. Raising €3 billion will be a major contributor to the overall funding needed this year to meet state borrowings and debt maturities. The NTMA has announced that it will be achieved through the issue of a new bond, maturing in just over 10 years time on May 15th, 2026.

With existing Irish 10-year debt trading at a fraction over 1 per cent, market sources anticipate that the new funds should be raised at between 1.1 and 1.3 per cent. A small premium over market rates would be normal for a new bond issue, but strong demand should keep the cost down.

January tradition

The NTMA traditionally moves in early January to start its fund-raising, but will have also been encouraged this year by the interest rates trend and strong demand on the secondary market, where investors buy and sell debt to each other .The agency would be unlikely to raise funding during a general election campaign and will also be aware that forming a new government afterwards may take some time and could lead to investor uncertainty, depending on the election outcome.

The NTMA has appointed six lead managers for the issue - Bank of America Merrill Lynch, Barclays, Davy, Morgan Stanley, Royal Bank of Scotland and SG CIB. They will effectively underwrite the issue and sell on bonds to other investors.

The equity market nervousness in early trading sessions of 2016 has led to more money flowing into safer investments such as government bonds. This has pushed down the yield, or interest rate, on euro zone bonds . The existing 10 year Irish bonds traded between investors at around 1.02 - 1.03 per cent on Wednesday, compared to 1.25 per cent at the start of the year. Trading volumes have been significant in recent days, indicating a high level of investor demand. Irish debt interest rates are now trading just above French bonds , with demand encouraged by the run of strong Irish economic growth figures.

Equity markets

As bond markets stayed firm on Wednesday, equity markets remained under pressure over concern about the outlook for China and wider fears over world growth.The Iseq index dropped by 0.73 per cent and most European markets lost over 1 per cent, unnerved by a move by the Chinese authorities to allow its currency, the renminbi, to devalue further. This also led to falls in emerging markets and their currencies, due to fears that a weaker Chinese currency would damage their prospects.

Adding to deflationary concerns, oil prices fell to their lowest levels since 2004, with Brent crude dropping below $35 a barrel as new figures showed the US stockpiles of oil products continued to rise, adding to fears of a glut on the market. For the moment investors are overlooking political tensions in the Middle East and focusing on concerns that slower growth and high stocks will keep oil prices under downward pressure.

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