NTMA plans multibillion-euro bond sale within weeks

The National Treasury Management Agency (NTMA) said on Wednesday that it plans to hire a group of banks to market a large bond deal in April, at a time when the Government's bill to fight the impact of Covid-19 on the health system and economy is rising.

It is expected that the deal will amount to billions of euro and could be launched as soon as next week. The NTMA typically only uses a club of banks at the start of the year to get its funding programme under way. It raised €4 billion in January through such a syndicated transaction.

The agency, which handles the State’s national debt and funding requirements, also plans to carry out regular bond auctions on May 14th and June 11th.

The NTMA, led by Conor O’Kelly, said last week that it was well positioned to increase borrowing activity in the coming years from the economic disruption caused by the coronavirus pandemic. Its previous objective of only raising between €10 billion and €14 billion has been abandoned.

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At the end of February, the NTMA had €26 billion to fund this year’s €19 billion of bonds that fall due for redemption.

The final cost of Government efforts to cushion the blow of the crisis for households and businesses, as well as necessary measures to “reboot” the economy after the health emergency eases, “could easily exceed” 10 per cent of the size of the economy, or the equivalent of €30 billion, according to KBC Bank Ireland economist Austin Hughes.

“In light of developments related to Covid-19, which will increase our borrowing requirements in 2020, the agency is currently reviewing its anticipated borrowing activity for 2020 and will provide updated guidance in due course,” a spokesman for the NTMA said. “ In this respect, the NTMA is considering a mixture of issuance, including long-term funding, short-term funding and use of cash assets.”

The European Central Bank moved two weeks ago to rein in diverging borrowing costs across the euro zone by announcing a €750 billion pandemic emergency bond-buying programme. Governments across Europe face having to resort to the debt markets in the coming months to borrow hundreds of billions of euro to fight Covid-19’s assault on their health systems and economies.

Taoiseach Leo Varadkar joined a host of prime ministers across the euro zone last week, from Italy to Slovenia, in calling for a mutualised debt instrument, or so-called coronabonds, to help the currency region deal with the financial fallout from the virus. However, German chancellor Angela Merkel and Dutch premier Mark Rutte are resisting the idea in much the same way they rejected the notion of euro bonds during the financial crisis.

Spain, currently home to the world’s second most deadly outbreak of Covid-19, raised €10 billion through the sale of seven-year bonds early last week, while Belgium received more than €58 billion of orders on Tuesday for €8 billion of bonds of a similar duration. Portugal hired a syndicate of banks the same day to market bonds, due to expected extra funding needs for the pandemic.

The market interest rate, or yield, on Ireland’s benchmark 10-year bonds is currently 0.05 per cent, having stood at minus 0.22 per cent a month ago. The yield peaked at 14 per cent in 2011, at the height of the financial crisis.

Able to cope

Moody’s, the only leading debt ratings agency to downgrade Ireland’s creditworthiness to junk status during the financial crisis, said on Tuesday that it expects that the State to be able to cope with a “temporary increase in debt” resulting from coronavirus-related stimulus.

Mr Varadkar has presided over the announcement of €6.7 billion of financial measures for the health system and economy, including wage supports for companies hit by the crisis, at a time when the number of individuals seeking unemployment benefit is soaring.

“As long as the crisis remains relatively short-lived and the increase in spending is temporary and limited to 2020, Ireland’s credit profile remains resilient to a temporary deterioration in fiscal metrics,” Moody’s said. “The economic contraction and the associated decline in tax revenue, combined with the fiscal stimulus, will push the government financial balance back to deficit in 2020 after returning to balance in 2018.”

The Government’s debt burden fell from more than 120 per cent of gross domestic product (GDP) in 2013 to an estimated figure of below 60 per cent at the end of last year, driven by economic expansion, according to an NTMA presentation for analysts published in January.

However, debt relative to the size of the underlying economy – which is called GNI* and excludes the activities of multinationals and profits retained by so-called redomiciled companies – stands at about 100 per cent.