NTMA sells €1.25bn of bonds before ECB rattles market

The National Treasury Management Agency issued €1.25 billion of debt in two auctions on Thursday, taking advantage of calm markets before European Central Bank president Mario Draghi sent bond prices lower.

The State’s debt agency sold €850 million of benchmark 10-year bonds, priced to carry a yield, or interest rate, of 1.046 per cent, and a further €400 million of bonds that are not due to mature until 2045. The yield on these bonds was set at 2.187 per cent.

However, euro zone bonds fell within hours of the auction, driving yields higher, after Mr Draghi accompanied a widely-expected ECB decision to keep its main interest rate at zero by subtly indicating the era of extraordinary stimulus has peaked. Some two years after the ECB started buying government bonds under what has become a $2.3 trillion quantitative easing programme, euro zone inflation has breached the bank’s target of just under 2 per cent, albeit driven by rising energy costs.

Inflation and growth

While Mr Draghi reiterated that interest rates will remain at “present or lower levels for an extended period of time” he dropped previous pledges to use “all instruments” available to the ECB to reignite inflation and growth.

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"In September, if the outlook plays out as we expect, the ECB will likely announce a further reduction of the monthly [bond] purchases, to start in January," said Morgan Stanley economist Daniele Antonucci. "The central bank is playing for time. But it's only a matter of time, in our view."

The yield on Ireland’s 10-year bonds rose by 0.05 percentage points on Thursday to 1.11 per cent, in line with other European securities. However, they remain well below their 2011 peak of 14.2 per cent.

NTMA chief executive Conor O'Kelly underlined at an Oireachtas committee meeting on Wednesday how the ECB's quantitative easing programme has been providing a "supportive backdrop" to the agency's borrowing activity.

The NTMA will need to refinance over €52 billion of Government debt between October of this year and the end of 2020, including bilateral loans the State received under its €67.5 billion international bailout in 2010.