State to sell €500m worth of 12-month short-term debt

The State’s debt agency plans to sell €500 million of short-term debt, known as treasury bills, this week in what is expected to be its last engagement this year with the capital markets.

The bills, which will be auctioned on Thursday, were due to be repaid in 12 months, the National Treasury Management Agency said.

The move comes as the market interest rate, or yield, on bonds globally spiked as surging oil prices led to speculation of a rise in inflation.

Brent crude oil jumped as much as 6.6 per cent in London to reach $57.89 a barrel for the first time since July 2015, after the Organisation of Petroleum Exporting Countries (Opec) reached a deal over the weekend with 11 other producers, including Russia and Mexico, to cut production in what amounts to the first deal of its kind for 15 years.

Irish long-term interest rates hit highest level in 10 months

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Oil jumps after Saudi Arabia looks likely to cut output

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European shares enjoy strongest week since January

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Euro settles down after volatility prompted by ECB moves

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The yield on Ireland’s benchmark 10-year bonds rose to 1.065 per cent for the first time in 10 months. However, the rate fell back during the session to the 0.98 per cent level at which it closed on Friday.

Irish and Portuguese bonds have been under pressure since late last week as the European Central Bank failed to ease the terms of its huge stimulus plan, even as it extended the programme's lifespan to the end of next year.

Irish bonds

The ECB is restricted to buying no more than 33 per cent of eligible bonds from a single state and 33 per cent of any single bond in issue in most cases. This leaves the organisation with limited capability to buy Irish bonds.

Sources also said last week that the ECB, through the Central Bank, will continue to buy Irish bonds to the end of 2017. However, the amount acquired each month is likely to drop by about 50 per cent to €400 million a month, they said.

The yield on US 10-year Treasuries climbed above 2.5 per cent for the first time since 2014 as surging oil prices added momentum to a global rout in bonds. The US is primed for a rate hike Wednesday, which would only be its second since 2006.

"On our rough calculations we've seen over 670 rate cuts globally since the [global financial crisis of 2007-2008] but not much more than a handful of hikes," said Jim Reid, a macro credit strategist with Deutsche Bank. "So this is a pretty monumental event."

Meanwhile, the surge in oil prices helped Tullow Oil jump almost 7 per cent in Dublin, making it the hottest stock in the European energy industry this year.

"It's a large liquid stock which is highly geared to the oil price and is seen as being a go-to stock in the sector for investors looking for exposure to the oil price," Charlie Sharp, an analyst at Canaccord Genuity Group, told Bloomberg.