State raises €6bn from new 10-year bond

THE GOVERNMENT has raised €6 billion in the debt markets through the sale of a new 10-year benchmark bond, bringing to €21.7 billion the total raised in long-term borrowings this year.

The National Treasury Management Agency (NTMA), which manages the State debt, plans to raise the remainder of the record €25 billion borrowing required this year through a series of auctions.

The auctions, from which the NTMA expects to raise between €5 billion and €6 billion, will be held on the third Tuesday of every month from July to November.

From today the ECB will accept euro zone government bonds as collateral from euro zone banks in its largest liquidity exercise to date. The banks will be able, for the first time, to borrow for up to one year at the ECB rate of 1 per cent. Demand is expected to run to hundreds of billions as the ECB is not expected to cut rates further.

The exercise, which has been described as “quantitative easing by stealth”, is intended to improve credit supply in the euro zone.

Ireland’s bond sale coincided with large fund raisings by the French and Belgian governments.

The NTMA has raised 86 per cent of the State’s borrowing requirement for this year to meet the deficit in the public finances caused by the collapse in the economy and the property market.

The NTMA said it may sell a 15-year bond next year to attract new investors to Irish State bonds.The longest Government bond currently on offer matures in 2020.

“We would like to stretch out the yield curve by having a new bond out there – all kinds of investors would like that,” said Oliver Whelan, the NTMA’s director of funding and debt management.

The 10-year bond was sold at a yield, or cost to the State, of 5.932 per cent, with Irish investors accounting for 22 per cent of the take-up. The yield stands as the highest of any state in Europe.

“To see the depth of overseas investors interested in Irish debt was reassuring,” said Mr Whelan.

The difference in yield, or spread, between the 10-year Irish bonds and the equivalent German debt widened to 229 basis points (2.29 percentage points) yesterday from 195 basis points a week ago.

NTMA chief executive Dr Michael Somers said: “The success of this bond issue is a clear signal of the confidence investors have in the Irish Government bond market. We are also pleased to have secured the bulk of our funding requirement for this year.”

Syndicated bond sales, where the debt is sold to investors through banks, is much more expensive than auctions as the primary dealer banks raising the funding for the State charge fees.

The NTMA raised €10 billion in two syndicated bond sales in January and February, and a further €4.7 billion in four monthly auctions between March and June. Another €1 billion was raised from retail savings schemes.

See 10-year bond spread table: The Markets