NTMA plans bond auction next week

The National Treasury Management Agency (NTMA) plans to increase its borrowing on two Government bonds next week in the face of renewed market turmoil over the sovereign debt crisis.

The NTMA, which manages the Government's debt, said today it would auction a 2016 and 2020 bond.

The agency has already tapped the capital markets for more than 80 per cent of the Government's €20 billion borrowing requirement for 2010, with €16.4 billion raised to date this year.

Irish borrowing costs remain high amid concerns the sovereign debt crisis may impede global economic recovery.

The spread, or difference between the rate investors demand to hold Irish debt above the benchmark German bond, slipped today slightly to 267 basis points (2.67 per cent).

Ireland's latest bond auction, the seventh of its 11 scheduled monthly auctions, comes as ratings agency Moody's decided to downgrade Portugal's debt rating, exacerbating concerns over peripheral euro zone debt.

Moody's today cut Portugal's rating by two notches to A1 with a stable outlook, saying the government's financial strength was likely to weaken in the near-term.

The euro responded by falling to a one-week low against the dollar ($1.2523) but later recovered after Greece sold €1.625 billion of worth six-month bonds at a better rate than it pays to borrow under its EU/IMF rescue fund.

This was the first time the country had returned to the capital markets since it was forced to activate the bailout plan in May to avoid default.

The head of Greece's debt agency said foreigners accounted for 20 per cent of demand at today's auction of the short term bonds.

"We are happy with the composition of the investor base and participation," Petros Christodoulou said yesterday.

"Starting from the very short end of the market, this is a thumbs-up for the fiscal policy that has been implemented," he added.

Foreigners normally buy about a third of this type of auction, he said. He also said Greece would not roll over bills due in 52 weeks and will issue more shorter-dated bills instead. Investors tend to demand higher returns for longer-dated debt.

"We opted not to pay up the curve to secure term liquidity, given term liquidity is provided by the package money," he said.

Greece sold €1.625 billion of the securities at a yield of 4.65 per cent, a lower funding rate than the target of about 5 per cent expected by analysts, prompted a rally in equities and a decline by German bunds.

The EU charged Greece a rate of about 5 per cent in its portion of the international rescue plan.

(Additional reporting Bloomberg)