State completes 99% of borrowing

IRELAND has now completed 99% of its stated €20 billion borrowing programme for this year, following the raising of a further €1.5bn through the eighth successful monthly Government bond auction of 2010.

Last month’s auction had seen a near 1% increase (from 4.72% to 5.54%) in the yield — or interest rate demanded by bond investors — on 10-year Irish securities and the yield between those and German bunds rose further last week mainly on uncertainty over how much the Government’s bailout bill for Anglo Irish Bank might rise to.

It was against that backdrop that the NTMA ventured into yesterday’s auction. As Dermot O’Leary, chief economist with Goodbody Stockbrokers, noted on Monday that the latest auction was less about funding this year’s budget deficit and more about the price at which the money is being borrowed.

And that was the bonus from yesterday’s auction. The latest 10-year bonds sold were done so with a yield of 5.38%; cheaper than the aforementioned 5.54% of last month; albeit still 3% higher than the rate currently being demanded for German 10-year bonds. Saying that, however, the NTMA remained pleased with the outcome.

“Today’s auction showed that investor appetite for Irish Government bonds has remained strong despite the market volatility of recent weeks,” said Anthony Linehan, deputy director of funding and debt management at the NTMA.

“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’s significant that the absolute yield achieved today on the benchmark 10-year bond was lower than at last month’s auction,” he added.

According to Brian Devine — economist with NCB Stockbrokers: “The one thing which could stop spreads from tightening is the Irish banking sector, in particular Anglo Irish. The European Commission decision on Anglo, due in September, will hopefully clarify the final figure [of the bailout].”