IRELAND SUCCESSFULLY tapped the global debt markets for € 1.5 billion yesterday but, given the renewed jitteriness of Europe’s peripheral bond markets following Greeces recent downgrade, had to pay more for doing so.
The National Treasury Management Agency (NTMA) issued €750 million of the 4.6 per cent Treasury Bond 2016, and €750 million of the 4.5 per cent Treasury Bond 2018 at auction, but found that yields have risen significantly since it last brought these bonds to market.
The 2018 bond was issued with a yield of 5.09 per cent, compared with just 4.55 per cent in August last, a difference of 54 basis points; while the 2016 bond was 4.521 per cent as against 3.663 per cent in April, an increase of 86 basis points.
Overall, however, the auction was deemed to have been perceived positively, given the very difficult environment.
Wilson Chin, a rate strategist with ING global financial services in Amsterdam, said that “good sentiment” was evident towards Ireland, illustrated by the fact that the transaction was three times over-subscribed, with total bids received of €4.5 billion.
The NTMA has now met in excess of 80 per cent of its €20 billion borrowing requirement for 2010, with €16.4 billion now raised to date this year.
“With more than 80 per cent of its long-term borrowing programme completed, Ireland is in a strong funding position. Allowing for other cash balances, the Exchequer is fully funded through end-2010,” said Alan McQuaid, chief economist with Bloxham Stockbrokers. The NTMA could have skipped yesterday’s auction, he said but it was “more about sending out the right signal to markets to leave the door open for the domestic banks to raise required funding”.
The timing of Irelands latest bond auction, the sixth of its 11 scheduled monthly auctions, came at an unfortunate time given events of the previous day when Moody’s followed in the footsteps of Standard Poor’s by downgrading Greece’s credit rating to junk status, citing “macroeconomic and implementation risks” in the implementation of its austerity programme.
Greek credit swaps are now signalling a 48 per cent probability that the state will default within five years.
The move exacerbated the precarious position of the other PIGS (Portugal, Ireland, Greece and Spain) countries.
Up until then, some certainty had returned to sovereign debt markets, but in line with the other peripheral countries, Ireland saw spreads of its bonds widen yesterday.
Last Friday, Irish bonds were trading at 248 basis points (2.48 percentage points) over German bonds, but since then spreads have widened, jumping up to 274 yesterday, although this is still some way short of the 306 reached on May 7th.
While Greece is by far the worst performer in Europe, with its bonds trading at 673 basis points over German bonds yesterday, Ireland now finds itself in the middle of the PIGSs, with both Spain and Portugal trading closer to Germany.
According to Mr Chin, it wasnt just the Greek decision which caused Irish spreads to widen. He said a feature of the current uncertain environment is that spreads widen ahead of an auction, and tighten thereafter.
Looking ahead, Mr McQuaid asserted that Ireland may end up paying higher interest rates to raise funds at the remainder of this year’s auctions. Mr Chin agreed the outlook was uncertain.
“The market is still fragile, still volatile. Every bit of negative news will cause some nervousness,” he said, although he added that some relief to the markets has come in Fitch’s assertion that it won’t downgrade Greece “in the immediate future”. – (Additional reporting Bloomberg)
