NTMA successfully sells €1.5bn of bonds at auction

THE NATIONAL Treasury Management Agency had little difficulty selling bonds worth €1.5 billion yesterday morning despite concerns about the Government’s creditworthiness.

The interest rate the agency was obliged to offer investors was broadly in line with expectations given market conditions immediately before the auction of the bonds.

Signalling a continued healthy appetite for the high-yielding IOUs, the auction was 3.4 times oversubscribed.

Anthony Linehan, deputy director, funding and debt management, with the agency, said the auction “showed that investor appetite for Irish Government bonds has remained strong despite the market volatility of recent weeks”.

The bond maturing in 2014 will pay an annual return of 3.63 per cent, while the 2020-maturing IOU will yield 5.39 per cent. The latter compares favourably with July’s auction, when the yield offered was 5.54 per cent (no 2014 paper was issued last month).

Although yields rose sharply over the past week, they had previously fallen from mid-July.

Yields on bonds of weak euro area governments have been highly volatile since April.

The bailing out of Greece and an emergency EU bailout fund, which was announced on May 7th, have done little to reduce that volatility.

Dermot O’Leary, chief economist with Goodbody Stockbrokers, said, “As a gauge to how Ireland is perceived, it’s the spread we have to look at.” And, while the difference in yields between Irish and German bonds, known as the spread, did narrow somewhat yesterday, falling back nine points to 290 basis points, this level “is still too high”, said Mr O’Leary. There was “an Anglo premium in that yield”, he said.

Mr O’Leary doesn’t expect yields to narrow significantly until further clarity is given on the future for Anglo Irish Bank, with the market still fearful that the cost of bailing it out “could tick higher again”.

Yesterday’s news that shoring up Irish Nationwide could be €500 million above the €2.7 billion previously envisaged did not appear to affect the market for Irish Government debt.

This was in contrast to last week’s similar revelation on saving Anglo Irish Bank.

Prior to yesterday’s auction, the agency had indicated it would seek to raise between € 1 billion and € 1.5 billion, but given that it received bids amounting to €5.085 billion, or 3.4 times its ceiling, it went for the higher amount. Some €500 million worth of the 2014 bond was raised. This was 5.4 times oversubscribed. And € 1 billion worth of 2020 bonds was sold, 2.4 times oversubscribed.

Although yesterday’s auction means the exchequer now has enough cash on hand to cover its expected outlays until the second quarter of 2011 without further borrowing, Mr Linehan said the agency would go ahead with the three remaining bond auctions for this year. These are scheduled for September, October and November.

Referring to the possibility of a syndicated sale of government debt later this year, in addition to auctions, Mr Linehan said the agency had had requests from investors to fill a gap in the yield curve, arising from the fact that Ireland has no bonds maturing in 2015.

However, he said that “no decision has been made yet”.

Spain, which is among the weaker euro area countries, also went to the market yesterday. It, too, obtained a better deal than one month ago.

It sold € 4.34 billion of 12-month bills at an average yield of 1.84 per cent, compared with 2.22 per cent on July 20th, and € 1.17 billion of 18-month bills at 2.08 per cent, compared with 2.33 per cent last month. – (Additional reporting: Bloomberg)