NTMA move to max out bond issue is puzzling


REST EASY, for another month at least. The Government bond auction yesterday went as well as it possibly could have done under the circumstances. The folk at the NTMA, not undeservedly, patted themselves and each other on the back, writes  DAN O’BRIEN, Economics Editor

Soaring yields since the last such auction a month ago, were, as was fully anticipated, fully reflected in the auction’s pricing. Taxpayers will have to hand over higher interest payments to the owners of the newly printed bonds until the two securities are repaid, in 2014 and 2018, respectively.

The decision of the NTMA to max out its allocation was curious. It had said prior to the issuance that it would offer no less than €1 billion and no more than €1.5 billion.

Given the elevated rates of interest, why lock in any more than necessary at higher rates, particularly as the agency has stated that it expects yields to fall back in the months ahead?

The NTMA not only sold the full allocation, but repeated its intention to plough ahead with scheduled monthly auctions over the rest of the year. And this despite not needing the cash urgently.

The agency is sticking to its view that being a dependable seller and always setting up its stall is the best way to assure its regular customers that it will be there for them when they come looking for bonds to buy.

This is understandable. If it had appeared to hesitate on the auctions over the remainder of the year, it could have raised questions about its vending plans.

Besides, a perfunctory statement about keeping to the timetable won’t mean much if push really comes to shove. It can always plausibly change its mind if things get more hairy in the months ahead.

Two of the three other peripheral euro area countries also had “successful” auctions yesterday morning.

Greece and Spain sold debt and saw the same pattern taking hold in the secondary market – yields declined once the primary market sell-off was completed.

A more insidious longer-term pattern seems to be emerging. As the over-subscription of the bond auctions yesterday shows, investors continue to queue up in numbers to buy risky bonds in the primary market.

But within days, they start selling them off at a loss in the secondary market, driving the yield ever higher. What on earth is going on?