State raises €1.5bn but borrowing costs rise

THE Government raised €1.5 billion in a bond auction yesterday which was the top amount it planned to raise.

As the markets were undermined by the Greek crisis and the cost of borrowing to weaker eurozone economies rose sharply, the National Treasury Management Agency (NTMA), which is responsible for raising money for the state, had said it might skip yesterday’s opportunity to issue new bonds if the cost of borrowing remained too expensive.

NTMA boss John Corrigan, said the economy had enough cash reserves to fund its needs going forward and could stay out of the market if needs be for some time.

The agency has cash of about €23bn and also has a carry over of €5bn from funding it raised towards the end of last year which offers a further buffer to the state if the markets get unhinged again at a later date.

Last week, Mr Corrigan told Reuters “normality” had returned to the market, and that the planned funding would go ahead.

The auction was the NTMA’s first since the €750bn eurozone bailout deal was agreed over a week ago.

The NTMA sought to raise between €1bn and €1.5bn yesterday, but with strong demand from investors, it sold the full €1.5bn.

However, the cost of borrowing did rise somewhat.

The state has to pay interest of 4.7% on the 10-year bond, against 4.4% in the March auction.

Under the circumstances and the huge uncertainty surrounding Greece and other euro states, analysts said the rate was acceptable.

The NTMA has now raised €13.2bn, about two-thirds of its €20bn borrowing target for the year.

It still has substantial cash reserves built up over the past two years to call on if the markets become too expensive in the coming months.

Two bonds were offered by the agency, including a 4% bond which matures in 2014 and a 10-year bond with an interest rate of 4.5%.

Oliver Whelan, of the NTMA, expressed satisfaction with the outcome given the recent euro turmoil.

Bloxham Stockbrokers economist Alan McQuaid said the agency would “be quite pleased with the result even though it ended up paying a higher yield than in earlier auctions”.