NTMA steals march into bond market with deal worth up to €4bn

State debt agency looks to raise up to a quarter of full-year target in early new year

The National Treasury Management Agency (NTMA) hired banks on Monday to help it raise up to €4 billion of debt, sticking to a trend over most of the past decade of the Irish government being among the first across Europe to venture into the new-year bond market.

Market sources said the NTMA, which manages government funding, plans to raise €3 billion-€4 billion through the transaction, which is expected to be priced on Tuesday. A spokesman for the agency declined to comment on the size of the deal.

The NTMA said it had hired Bank of America, Davy, Deutsche Bank, JP Morgan, Morgan Stanley and Nomura as joint lead managers for the sale of the bonds, which will be scheduled to mature in 2031.

Irish 10-year government bonds are currently trading to carry a negative market interest rate, or yield, of minus 0.314 per cent, close to the record low rate of minus 0.324 per cent set almost a month ago. The European Central Bank’s (ECB) multi-trillion-euro bond-buying initiatives are keeping borrowing costs down across the euro zone as governments borrow heavily to deal with the Covid-19 crisis.

The NTMA previously said it planned to raise €16 billion-€20 billion in the bond markets in 2021 to cover a budget gap caused by the Government’s response to Covid-19 and potential fallout from Brexit, even as the UK reached a Christmas Eve trade deal with the EU.

The agency tapped the markets for €24 billion last year at an average interest rate of 0.02 per cent.

Ireland joined Slovenia as to announce the first European sovereign bond deals of the year on Monday, ahead of what is shaping up to be a particularly busy month for debt issuance.

Budget gaps

Citigroup strategist Puja Sawant estimates the euro zone’s largest 11 debt issuers to raise €138 billion in the bond market this month, some €20 billion ahead of January 2020.

Most of the debt is being raised to finance budget gaps and cushion governments’ finances, as the level of existing debt that needs to be refinanced remains relatively low. Debt redemptions across the 11 countries are expected at €40 billion this month, the lowest January figure since 2000, according to Citigroup estimates.

The NTMA announcement came as euro zone government bond prices moved higher on Monday, forcing yields, which move inversely, to fall. Analysts were baffled by the phenomenon of sovereign bonds, which are seen as a safe haven investment, gaining in value at a time when riskier stock markets were also rallying.

The benchmark 10-year German government Bund yield fell 0.03 percentage points to minus 0.607 per cent.

“I have seen some commentary trying to explain the Bund rally by focusing on the rising Covid cases but then you see commentary explaining the rally in equities on vaccine hopes,” said Commerzbank’s Christoph Rieger, head of rates and credit research.

“The Bund strength is remarkable given equity strength, and I think maybe some market participants just like to hold Bund duration as a hedge in case the vaccine turns out to be problematic.”

Joe Brennan

Joe Brennan

Joe Brennan is Markets Correspondent of The Irish Times