The State has raised €1 billion in a well-received auction today as investors shrugged off Standard & Poor's recent downgrade of the country's sovereign rating in favour of high yields.
The National Treasury Management Agency raised €500 million each of the 2012 and 2016 bonds, the top of its €750 million to €1 billion range, and auctioned €500 million of 3.9 per cent notes maturing in 2012 to yield an average of 3.056 per cent, and €500 million of 4.6 per cent securities due 2016 to yield 4.755 per cent.
"I think there's an appetite for relatively high yielding paper at the moment and international investors do realise that Ireland is not going to default and will not be allowed to default," said Jim Power, chief economist with Friends First in Dublin.
"It's hard to see Ireland having difficulty selling bonds over the coming months."
The difference in yield, or spread, between Irish and German 10-year government bonds was unchanged at 196 basis points today. It jumped to 284 basis points on March 19th, the most in 10 years, compared with an average of 22 basis points over the past 10 years.
Irish debt has dramatically cheapened in the euro zone and it switched places with Greece as the highest yielder in the single currency bloc on May 29th amid fears over the cost of bailing out its debt-ridden banking sector.
Today, the 10-year Irish bond yield was 204 basis points above euro zone benchmark German Bunds. Standard & Poor's cut Ireland's rating for the second time in three months recently, taking it down to AA from AA+ and keeping the negative outlook.
Rival ratings agency Moody's Investors Service said this week it remained concerned about Ireland and will conclude a review of its top-notch triple-A rating in coming weeks.
The Irish government has so far raised over €14 billion of the €25 billion in debt it has earmarked this year to help plug a ballooning budget deficit, which at a targeted 10.75 per cent of gross domestic product (GDP) is proportionally the worst in the euro zone.
Ireland's debt to GDP ratio is set to jump to 59 per cent this year, still low by European standards, from 43 per cent in 2008 but that ratio will likely rise to over 100 per cent once the government issues bonds to Irish banks as part of its creation of a "bad bank" to cleanse the sector of risky property loans.
Earlier this month, the head of the national pension fund, said Dublin would likely issue a third syndicated bond later this year, in addition to more auctions, to raise funds.
Ireland generated €10 billion in two syndicated issues in January and February.
Reuters/ Bloomberg