Government borrows €6bn at higher rate

 

THE GOVERNMENT has raised €6 billion of at least €20 billion it will need to borrow this year to cover the State’s expenditure, but had to pay a higher rate to secure the money from investors.

The State’s money manager, the National Treasury Management Agency (NTMA), closed the sale of a five-year Government bond to investors yesterday, securing the €6 billion at a cost of 4.07 per cent. The rate is 25 basis points, or 0.25 per cent, above the cost that the State is paying for its existing five-year bonds.

The bond sale was over-subscribed with an order book of €7.2-€7.3 billion from 140 investors, primarily in Europe and comprising central bankers and asset managers. The Government is expected to borrow at least €20 billion in bond markets this year – higher than expected due to the deterioration in public finances.

The NTMA had aimed to raise €3 billion but secured a higher amount to raise money before the expected glut of bond sales from the US and European governments and state-guaranteed banks in the early part of the year.

The Government is paying 1.72 percentage points more than the cost of Germany’s existing five-year bonds, indicating that Irish sovereign debt is considered by investors to be a higher risk.

The rate on the bond is higher than the cost of existing five-year bonds to Italy (3.57 per cent) and Portugal (3.42 per cent), but lower than Greece (4.76 per cent).

Michael Somers, chief executive of the NTMA, said: “To have €6 billion under our belt this early in the year puts us in a very strong position for the rest of the year.”

He said this would help the NTMA to raise additional money on longer-term bonds, maturing up to 10 years, later this year.

He said the NTMA would begin auctioning another bond next month of up to €1.25 billion.

“We now have somewhere between a third and a quarter of what we will need to raise this year, depending on the State’s ultimate borrowing requirement, which will be between €20 billion or €25 billion,” said Mr Somers.

“We got in first ahead of the huge queue that is going to be looking for money.”

It is estimated that €2,000 billion will be raised by the US and European governments in the bond markets – three times more than was borrowed in 2008 – as states gear up to pay for fiscal stimulus plans and bank bailouts.

Global bond markets will come under further pressure as state-guaranteed banks around the world will also be seeking long-term funding through bond sales.

Rossa White, economist at Davy Stockbrokers, said the Government needed up to €25 billion to pay for this year’s deficit, replace a €5 billion bond maturing in April and to provide extra funds for potential bank recapitalisation.

“Getting to the market this early really takes some pressure off for the year,” he said.

Cowen has a straightforward task: Economics, page 4