Ireland returns to long term bond market for first time since IMF bailout, raising €4.19 bn in 5 year and 8 year maturities at around 5.95 p.c.
The auction on July 26th was part of an overall fundraising of €5.3 bn at an average yield of 5.95 p.c. The NTMA raised €5.23 bn, after the closing of a successful auction at 4.30 pm. Irish time. The fundraiising consisted of €4.19 bn in long term bonds, maturing 2017, and 2020, and the balance in rescheduling shorter-dated 2013 and 2014 bonds into the 2017 and 2020 bonds issued. The development marks Ireland's return to the bond markets for the first time since the IMF-Troika bailout in October 2010.

The yield on the shorter term, 2017, was 5.9 per cent, and the longer term 6.1 per cent, and the average yield on the money raised was 5.95 p.c.

The longer term (8 year) bond yield was at 6.1 per cent, in line with representative (synthetic) market yields at this level for 10 year bonds. The weighted-average yield on the combined transaction was 5.95 per cent, the NTMA said after the auction closed at 4.30 pm.

The Government can take some satisfaction that this rate came in below representative Spanish yields, and signals the return of the country to the markets.

The auction took advantage of a shift in bond market sentiment towards Irish bonds illustrated in this chart from the Irish Stock Exchange, which illustrates the step-change in market sentiment towards Irish bonds that occurred following the policy shift towards bond market burden sharing by EU Finance Ministers and the ECB, analysed in the cover story of the July issue of Finance Dublin at the last eurozone Finance Ministers council in June.

This is also the first time a eurozone bailout country has successfully returned to the markets, and as such is a positive development in the saga of the eurozone crisis, with most developments up to now tending to be 'crisis deepening' rather than 'crisis easing'. This development is in the 'crisis easing' category, and lends strong credence to the view of the Finance Minister, Michael Noonan, that Ireland would not need 'a second bailout'.

The Minister for Finance Mr Michael Noonan commented that, while an important step, the true indicator of Ireland’s success would be "our full emergence" from the EU-IMF bailout programme and the return to the international markets at sustainable rates.

Ireland's return to the bond markets and the sale of Irish paper was a "good day" for the State, secretary general of the Department of Finance John Moran said.

Speaking at the MacGill summer school in Glenties, Co Donegal, Moran pointed to the fact that some €4.19 billion of the €5.23 billion sold was 'new money'.

"Today is a good day. It has been September 2010 since external investors have been prepared to lend new money to Ireland and now we find ourselves back in," Moran said.

The NTMA statement did not provide any details about the distribution of the issues, but the Minister for Finance said that he understood over 75 p.c. came from outside Ireland. Anecdotal evidence cited in Dublin also referred to 'Scandanavian' and 'North American' uptake.

Davy Stockbrokers economist Conall MacCoille in an analysis wrote::

"The €5.2bn raised yesterday (July 26th) reduces Ireland's market financing needs through 2013-2014 from €31.8bn to €26.5bn. In addition, Ireland's €13.5bn of cash balances are available for sovereign funding needs.

"Additional policy actions will also help funding needs. The Irish Central Bank governor has indicated that European support to relieve the €3.1bn requirement for IBRC's promissory notes is now likely.

"The NTMA plans to expand Treasury bill issuance and is targetting up to €5bn of funding from domestic pension funds. If NTMA's targets are met, the Irish sovereign may only need to raise €13.6bn to end-2014 while maintaining a healthy buffer of €10bn cash balances.

"The 5.9 p.c. yield is still too high to guarantee debt sustainability, and risks to nominal GDP growth remain. However, the sale beat expectations and shows that markets approve of Ireland's ability to meet budget targets".

The full text of the NTMA statement was : "NTMA Announces Bond Switch and Outright Sale Results

"The National Treasury Management Agency announced the results of today’s exchange offer and sale of new bonds in which investors committed a total of €5.23 billion into longer-dated bonds maturing in 2017 and 2020.

"Of this, some €4.19 billion was new money for the purchase of the two longer-term bonds on offer - a new 5 year bond maturing in October 2017 and an existing bond maturing in October 2020. A further €1.04 billion was for the exchange of their holdings of the shorter-dated 2013 and 2014 bonds into the 2017 and 2020 bonds.

"The 2017 bond carried a yield of 5.9 per cent and the 2020 bond a yield of 6.1 per cent. The weighted-average yield on the combined transaction was 5.95 per cent.

"Speaking today, NTMA Chief Executive John Corrigan said: “We are very pleased with the success of today’s transaction, particularly the fact that investors committed more than €4 billion of new money to our first long-term issuance since September 2010. This marks a very significant step for Ireland on the way to full bond market access. As a result of today’s transaction, the NTMA has now covered a significant proportion of the €8.2 billion bond maturing in January 2014 which up until now has been seen as a challenging “funding cliff.”