ECB Irish bond restrictions may be eased by NTMA, Central Bank

The European Central Bank will be able to buy more Irish bonds than feared next year, if the State's debt agency issues the maximum €13 billion of bonds it has targeted for 2017 and the Central Bank keeps selling bonds linked to Anglo Irish Bank's bailout at pace.

Economists were surprised on December 8th when the ECB extended the lifespan of its huge stimulus programme to the end of next year, but failed to ease the terms attached to it. These terms restricted the ECB to buying no more than 33 per cent of eligible bonds from a single state and 33 per cent of any individual bond in issue, which put Ireland and Portugal at an immediate disadvantage to other euro zone countries.

Before the ECB meeting, Cantor Fitzgerald’s head of fixed-income strategy in Dublin, Ryan McGrath, estimated that euro zone central banks held about €31.34 billion of eligible Irish bonds under the quantitative easing plan. That equated to over 97 per cent of the maximum amount Mr McGrath estimated the ECB could buy, based on the strict conditions attached to the programme.

Sources said, after the ECB governing council meeting, that even with further planned government debt sales and other actions next year, the amount of Irish bonds acquired each month by the ECB would be likely to drop by about 50 per cent to €400 million a month.

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However, market sources said on Thursday it is likely the ECB, through the Central Bank in Dublin, will be able limit the fall-off in Irish bond purchases next year to less than 30 per cent.

NTMA

That's partly based on the National Treasury Management Agency selling the maximum €13 billion of bond sales it has targeted for next year, which the debt agency announced last week.

It also assumes the Central Bank keeps up the pace of selling off bonds relating to the bailout of Anglo Irish Bank.

The securities are the result of the Central Bank receiving €25 billion of government bonds in 2013 under a complex restructuring of promissory notes used by the State during the crisis to rescue the bank.

When Irish Bank Resolution Corpration (IBRC), as Anglo Irish was renamed in 2011, was put into liquidation almost four years ago, the promissory notes were being used by the failed bank as collateral for emergency Central Bank funding.

The Central Bank sold €3 billion of these bonds to the NTMA this year, including a €500 million tranche on Thursday. Last year, the NTMA bought €2 billion’s worth of such bonds from the Central Bank.