NTMA filling its boots with cheap money

Cantillon: State agency prepares to raise €3bn by selling a 15-year bond to investors

NTMA chief executive Conor O’Kelly. Photograph: Sara Freund/The Irish Times

NTMA chief executive Conor O’Kelly. Photograph: Sara Freund/The Irish Times

 

The National Treasury Management Agency is not hanging around in its plans to raise new cash. Having already secured €6.25 billion this year, the State agency announced on Monday that a new 15-year bond was to be sold to investors.

Market sources speculated that at least €3 billion, and possibly a bit more, was likely to be raised, with the bond to go to market on Tuesday. This would mean close to €10 billion raised before the end of the first quarter, out of a total fundraising target of €14-€18 billion this year.

The NTMA entered 2018 with a substantial €10 billion cash pile. But despite the cost of carrying cash in a low interest rate world, it makes sense for it to raise significant amounts for two reasons. The first is that it has to make a hefty €8.9 billion repayment to investors as a previous bond matures in October of this year.

Counting in exchequer borrowing and other expected cash movements, the NTMA plans to end the year with just over €12 billion in cash.

The second reason for keeping the cash pile high is that, sooner or later, the European Central Bank is going to stop buying government bonds as part of its stimulus policy and this will be followed by a rise in short-term interest rates, possibly around the middle of 2019. This will lead to longer-term market rates rising and will increase the cost to the government of borrowing cash.

So best to fill our boots now.

It is hard to overstate just how significantly this environment of rock bottom interest rates and ECB bond buying has helped us. A recent NTMA investor presentation pointed out that forecasts as recently as 2014 were for interest payments on our national debt to be around €10 billion per annum by now.

In the event, they will be around €6 billion, with the average interest rate now below 3 per cent.

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