State auctions 1bn of bonds

THE Government sold €1 billion of bonds after receiving healthy demand that showed growing investor confidence in efforts to fix the eurozone’s worst public finances.

The Government auctioned €300 million of 4% notes maturing in 2014 to yield an average of 3.9%, and €700m of 4.4% securities due in 2019 to yield 5.19%, the National Treasury Management Agency said from Dublin.

Finance Minister Brian Lenihan said the bond sale “went quite well”.

He made the comments speaking to reporters in Frankfurt.

Investors bid for 4.8 times the 2014 debt offered and 1.8 times the 2019 securities available.

With total bids at €2.7bn, the sale hit the top of a €750m to €1bn range in the first auction since Mr Lenihan started a tour of European financial capitals to talk up the Irish investment case.

“It probably justifies the time that’s been spent by the minister going around Europe to allay fears to investors that the Irish economic situation isn’t as bad as it’s portrayed,” said Alan McQuaid, chief economist at Dublin-based brokerage Bloxham.

Demand was much stronger than at the last auction on April 21, with the bid to cover ratio on a 4% 2014 bond jumping to 4.8 from 1.6 last month.

A reopened 2019 bond was covered 1.8 times, still higher than the paltry 1.1 ratio for a 2018 bond in April.

David Schnautz, a bond analyst at Commerzbank in Frankfurt, said the successful sale bode well for preventing a buyers’ strike emerging for eurozone government debt.

“The fact that Ireland was able to raise the maximum amount of the intended supply via an auction and that (it) managed to tilt the distribution between the two bonds to the longer end indicate growing confidence of investors in Ireland’s ability to fund the ballooning deficit going forward,” he said.

Ireland has raised more than half of a €25bn total in debt this year to help plug a ballooning budget deficit, which at 10.75% of gross domestic product (GDP) this year is proportionally the worst in the eurozone.

Ireland’s debt to GDP ratio is set to jump to 59% this year, still low by European standards, from 43% in 2008, but that ratio will likely rise to more than 100% once the government issues bonds to Irish banks as part of its creation of a “bad bank” to cleanse the sector of risky property loans.

“The risk appetite of the funding market towards Ireland and towards banks in Ireland has improved quite significantly over the past four to six weeks,” said John O’Donovan, chief financial officer at Bank of Ireland, at the presentation of its full-year earnings.