State raises further €1bn from bond sale amid lower demand

THE GOVERNMENT has raised a further €1 billion in the sale of two bonds, bringing total borrowing this year on long-term debt to €12.3 billion, just shy of half the record €25 billion State borrowing required this year.

The National Treasury Management Agency (NTMA), the Government’s debt management body, raised €700 million on a bond to be repaid in 2018 and €300 million on a bond maturing in 2014.

The bond auction was the first since the Government’s emergency Budget on April 7th. It is also the first since the State’s top AAA-rating was cut by Standard Poor’s and Fitch

Demand was considerably lower than for last month’s bonds. The 2018 bond was 1.1 times oversubscribed by investors, while total bids for 2014 bond amounted to 1.6 times the amount allocated.

Investors bid 3.8 times the sum raised on a 2011 bond last month and 2.7 times on a 2020 bond.

The lower demand in yesterday’s auction was attributed to the lower spread, or the difference in yield (the borrowing cost) between Irish and German sovereign debt.

The spread between Irish and German 10-year bonds, the benchmark reflecting risk on government debt, widened to 213 basis points, or 2.13 percentage points, from 209 basis points on Monday.

However, the spread has narrowed sharply since last month when the yield difference over the German bund reached 284 basis point, the widest level in 10 years, compared with an average of 20 basis points over the past decade.

Greek and Italian debt widened by higher margins yesterday, as there was a general sell-off in the sovereign debt of smaller states.

“In what were very difficult market conditions, we were very pleased with the cover [demand from investors] we got,” said Oliver Whelan, the NTMA’s director of funding and debt management.

He said larger numbers of investors tend to be more keen to buy debt when spreads are wider.

The average yields on the debt securities sold at auction yesterday were 5.082 per cent on the 2018 bond and 4.2 per cent on 2014. The yield on the 2018 bond has fallen by 48 basis points in the last month, while Germany’s bond has risen 19 basis points.

“It is comforting that Ireland can issue debt out at that maturity,” said Barry Nangle, head of bonds at Davy stockbrokers.

The Government raised €1 billion last month in the first public auction of bonds in four years. A further €300 million was raised in a 48-hour period following this bond auction under the non-competitive element of the sale when primary dealers can take take up to 30 per cent more of the amount raised at auction.

The Government will hold further bond auctions next month and in June, and plans to raise between €750 million and €1.25 billion at each sale of State debt. Some €10 billion was raised in two bond sales in January and February through syndication deals.

In such transactions, governments use banks to source buyers rather than offer the securities directly in public auctions.

“It is not even May yet so some advance has been made – it is quite promising,” said Ciarán O’Hagan, head of rates strategy in Paris for French bank Société Générale.

The NTMA hopes to raise €1.6 billion tomorrow under its treasury bill programme, a form of short-term funding, selling one-, three- and six-month bills at auction.

The agency raised €1.5 billion last month under the programme.