The National Treasury Management Agency (NTMA) sold €1.5 billion of bonds today and said it expects the country to have a funding requirement of €25 billion for 2011.
The scheduled monthly auction was considered a crucial indicator of the market, coming in the wake of market turmoil that has seen the premium investors demand to hold Irish 10-year debt rather than the benchmark German bund widen to more than 300 basis points in recent days.
Credit-default swaps on dropped from a 17-month high, falling 30.5 basis points to 272.5, according to data provider CMA. That's the biggest decline since June 9 and follows nine straight days of increases.
Some €500 million of the 4.0 per cent bond for 2014 was issued at an average yield of 3.627 per cent, with €1 billion of the 5 per cent benchmark 10-year bond issued at an average yield of 5.386 per cent, lower than the 5.537 per cent recorded last month.
Investors bid for 5.4 times the 2014 securities offered, compared with 3.1 times in May, and 2.4 times the 2020 debt, against 3 times in July. Total bids for the bonds amounted to €5.085 billion, or 3.4 times the maximum amount on offer.
“Today’s auction showed that investor appetite for Irish Government bonds has remained strong despite the market volatility of recent weeks," said the NTMA's deputy director of funding and debt management Anthony Linehan.
"The decline in German yields to their lowest level in decades has contributed to the widening of the spread of Irish bonds over their German counterparts but it is significant that the absolute yield achieved today on the benchmark 10-year bond was lower than at last month’s auction.”
This is the eighth monthly auction the NTMA has held this year. To date, the agency has raised €18.3 billion from the bond market, some 99 per cent of its borrowing programme of €20 billion for 2010.
Ireland will have to redeem a bond worth €4.4 billion next year, along with an estimated fiscal shortfall of €18 billion and a likely €2.5 billion promissory note to help fund nationalised lender Anglo Irish Bank.
"(This) gives you a gross funding for the year of 25 billion all round," Mr Linehan said.
The NTMA will use the next three monthly auctions to start pre-funding for 2011 and will also carry over €5 billion already raised into 2011, leaving a likely net funding requirement of around €15 billion next year, he said.
Mr Linehan added that no decision had been made on whether to issue syndicated debt with a maturity of 2015. The head of the NTMA said last month that a syndicated bond could be offered towards the end of this year.
The euro extended gains against the dollar and came off seven-week lows against the yen after the auction's results.
"Much better than the markets had expected, and there is some relief that Ireland was able to put away the bonds. So the euro is seeing a bit of a rebound," said Ian Stannard, senior currency strategist at BNP Paribas.
NCB economist Brian Devine said demand for the bond was solid.
"The one thing which could stop spreads from tightening is the Irish banking sector, in particular Anglo Irish," he wrote in a note. "The Government has stated that €25 billion will required in total capital transfers to Anglo. The EU Commission decision on Anglo due in September will hopefully clarify that this is the final figure."
Spain, another country being closely watched by investors as it struggles to emerge from recession, sold €5.51 billion of debt, at the top end of its target of €4.5-5.5 billion, with yields falling from last month.
"Spain has managed to get things done despite low liquidity in the markets. It is good for periphery sentiment - sovereigns in general are not having funding problems which is a good sign for markets," said Orlando Green at Credit Agricole.
Additional reporting: Bloomberg, Reuters
