State to sell up to €1.25bn of bonds in choppy market

Irish bond yields have surged since last bond sale in early January

NTMA chief executive Conor O’Kelly. The State’s debt agency is to  sell between €1 billion-€1.25 billion of bonds due to be repaid in 2028 and 2037. Photograph: Dara Mac Dónaill

NTMA chief executive Conor O’Kelly. The State’s debt agency is to sell between €1 billion-€1.25 billion of bonds due to be repaid in 2028 and 2037. Photograph: Dara Mac Dónaill

 

The National Treasury Management Agency plans to sell up to €1.25 billion of bonds on Thursday, amid choppy international financial markets as investors globally fret about rising inflation.

The State’s debt agency said on Monday that it will sell between €1 billion and €1.25 billion of bonds, due to be repaid in 2028 and 2037. The yield on the €4 billion of 10-year government bond sold by the NTMA in the first week of January has since jumped to 1.174 per cent on Friday from an initial 0.944 per cent rate.

The yields on Germany’s 10-year bonds, the main European benchmark, rose to their highest levels since September 2015 on Friday, to 0.774 per cent, as strong economic data globally and signs of a pick-up in inflation fuel speculation that major central banks may step back from ultra-easy monetary policies at a faster rate than previously expected.

A report on Friday showing that US wages are growing at their fastest pace in more than 8½ years have added to the speculation that the Federal Reserve may step up rate hikes. Futures markets now price in the risk of three, or even more, rate increases from the Fed this year.

Nervousness across bond markets has also spilled over onto equities in the past week.

Storm in a tea cup

“The current global market sell-off is likely to be a storm in a tea cup. We will probably see a recovery rally within the week,” said Tom Elliott, international investment strategist at deVere Group, the London-based financial consultancy.

“The rise in bond yields reflects investors suspicions that inflation will become a problem, and so they are demanding higher yields to protect them. This fear comes from a steady upgrade to global gross domestic product estimates over the last 12 months; further weakness for the dollar in January, raising US import inflation; and the likely inflationary effect of Trump’s tax cuts as companies invest more and household income taxes are reduced.”

The European Central Bank cut monthly bond purchases under its €2.5 trillion quantitative easing programme to €30 billion from €60 billion in January.

The bond-buying programme, which the ECB started in 2015 to reboot inflation and the wider euro area economy, is currently set to run until September.

Some hawkish voices on the organisation’s governing council have been calling in recent week for the unprecedented QE programme to end at that date.

The NTMA plans to sell between €14 billion and €18 billion of long-term debt this year. After Thursday’s auctions it will have raised as much as €5.25 billion.