Government raises €1bn on sale of two bonds by NTMA

THE GOVERNMENT has raised a further €1 billion on the sale of two bonds by the State’s fund management body the National Treasury Management Agency (NTMA).

It auctioned €700 million worth of five-year bonds and €300 million worth of three-year bonds, bringing to €22.7 billion the amount raised in long-term borrowings this year.

Bank of Ireland also took advantage of favourable terms in the bond markets by raising a further €500 million under the Government guarantee. The bond was 1.6 times oversubscribed by investors.

The sale brings to €4 billion the total raised by the bank under the guarantee. Irish lenders have raised €12.25 billion on bonds maturing before September 29th, 2010 when the guarantee ends.

Bank of Ireland paid investors 157 basis points (1.57 percentage points) over the midswaps rate, the benchmark for pricing bonds, well in excess of the 55 basis points over the midswaps rate the bank paid for €2 billion last year.

The Government has agreed to extend the guarantee on the sales of individual bonds, and negotiations on the cost of the extension are progressing. Banks pay the Government €440 million a year under the terms of the guarantee.

The NTMA plans to raise a record €25 billion in borrowings this year to meet the deficit in the public finances. It will borrow the remainder through four more monthly auctions to November.

Yesterday’s 2014 bond was sold at an average yield of 3.755 per cent and was three times over-subscribed by investors, while the 2012 bond sold at an average yield of 2.57 per cent and investors bid 4.3 times the debt offered.

The difference in yield between Irish and German 10-year bonds – the benchmark for the financial risk posed by Irish Government State debt – narrowed slightly to 199 basis points (1.99 percentage points) yesterday, below a 10-year high of 284 basis points in March.

Alan McQuaid, economist at Bloxham Stockbrokers, said: “There is no doubt that investor risk appetite has picked up in recent months which has helped the NTMA.” He warned against becoming complacent and believing that the State could keep borrowing in the bond markets.

“Quite simply, the huge levels of debt we are building up are unsustainable in the long run,” he said.

In a separate development, Irish Life & Permanent was downgraded by ratings agency Fitch.

The agency said that while the group had fewer risks than rivals, it expected a deteriorating business environment to lead to falling revenues and higher bad loans.

Fitch said bad debts on residential mortgage books in Ireland and the UK were higher than expected, while higher unemployment and declining house prices mean loan charges are likely to remain substantial in 2010.

Permanent TSB is planning to raise standard variable mortgage rates for existing customers, according to recent news reports.