Irish bond sale may be affected by Brexit fears

Ireland's debt agency may meet low demand this week for its first bond sale since the general election, as political stalemate and fears over the UK leaving the European Union weigh, according to analysts.

The National Treasury Management Agency said yesterday it plans to auction €750 million of 10-year bonds on Thursday, with the amount on offer falling short of market expectations.

"I am a bit worried that demand is going to be low, given the Brexit fears as well as political uncertainty,'' said Jens Peter Sorensen, chief analyst with Danske Bank in Copenhagen.

Interest rate

The market interest rate on Ireland’s benchmark 10-year bonds rose 0.05 percentage points yesterday to 0.83 per cent as the country ended its 45th day since the general election in February without a government being formed.

Meanwhile, Ibec, the employers’ representative group, warned today that Ireland’s trade-flows with the UK could fall as much as 20 per cent in the event of Brexit, as the latest polling suggest a 50:50 split in Britain over remaining in the EU before a referendum in June.

Demand among investors in the past 12 Irish bond auctions has typically been for two to three times the amount of notes the NTMA had marketed.

However, this dipped to 1.8 times in the last sale in February, weeks before the election.

The amount of bonds being sold "is marginally lower than market expectations – we had expected €1 billion,"siad Ryan McGrath, head of fixed-income strategy at Cantor Fitzgerald in Ireland.

Still, he said, the auction will likely be “well-received, despite the domestic political uncertainty and the looming Brexit vote”.

Following the auction, the NTMA will have completed €4.75 billion out of its targeted funding range for the full year of between €6 billion and €10 billion.

Underpinning Irish bonds generally this year is the country's economic growth prospects and the fact that the European Central Bank will buy about €13 billion of Irish government debt in the markets under its bond-buying programme, known as quantitative easing, according to Sorensen.

That’s 1.6 times the amount of debt the NTMA is likely to issue this year, he said.

Biggest redemption

The NTMA is due to repay €8.1 billion of government bonds next Monday, its biggest redemption of the year.

It had previously chipped away at the amount falling due next week by allowing investors to switch from the bonds into longer-term ones.

It has more than enough cash to hand to meet redemptions and fund exchequer needs for a lengthy period.

The market rate on Ireland’s 10-year bonds, or yield, have fallen to 0.83 per cent from the 0.99 per cent price at the last auction on February 11th.

Long-term bonds fell across Europe yesterday, led by French notes after the country’s debt office said it planned to sell 20- and 50-year debt in a deal managed by a group of banks.

The NTMA has managed to lower the overall cost of servicing Ireland’s national debt over the past couple of years, raising significant sums on the market at low interest rates.

It has set a target of raising between €6 billion and €10 billion this year and has already raised €4 billion in the first quarter.

It has said it will have two debt auctions in the first quarter of this year, the first one on Thursday and the second in May.