Bond swap reveals reputation rise

Ireland’s profile among foreign investors improved further yesterday, with the National Treasury Management Agency (NTMA) successfully postponing as much as 30% of debt repayments to bondholders from 2014 to 2015.

Before yesterday’s announcement, the agency was due to repay around €12bn worth of Irish government debt to bondholders during 2014 — just a year after the end of the EU/IMF funding programme. This agreement, however, sees the NTMA effectively park €3.53bn in repayments until 2015, when previously no repayments were scheduled.

Yesterday’s successful bond swap exercise marked the first time the agency — which is responsible for managing Ireland’s national debt — has engaged in the international bond markets for 16 months, and comes ahead of a gradual return by the end of this year.

In that time, the yields on Irish bonds have come down from double figure percentages to far more sustainable mid-single digits.

In this latest deal, the new bonds were issued with a yield of 5.15%. Investors were offered an opportunity to exchange their holdings in the existing 2014 bond for a new 4.5% treasury bond, maturing in February 2015. Strong interest was shown in the exchange, resulting in 30% — or €3.53bn — of the 2014 repayment switching into new 2015 maturing bonds. Prior to yesterday’s deal, the NTMA had been hoping to switch between €1.5bn and €2bn back to 2015.

The agency said the move would help smooth the maturity of the bond due in January 2014, with the decision reflecting the “substantial demand among investors for our short-dated paper and the resulting decline in yields on Irish paper, recently”.

Donal O’Mahony, global strategist at Davy Stockbrokers, added: “Today’s exercise is a very positive surprise for an Irish bond market that has seen no NTMA involvement since September, 2010. It reflects the sustained improvement in market sentiment over the past two months, which has lowered bond yields of all maturities into the 5%-7% zone from 9%-10% previously.”

He added: “The €3.54bn exchange of 2014 bonds into a new 2015 issue amounts to 30% of the refinancing needs for that year and is, thus, a considerable boost to the sovereign’s cash management requirements.

A spokesperson for the NTMA said: “We are very pleased with the strong take-up of this switch offer. This exercise has demonstrated investor appetite for Irish Government paper and will support our plans for a phased re-entry to long- term debt markets.”

Earlier this month, the agency said it hopes to return to the short-term bond markets this year ahead of a planned resumption of auctioning longer-term debt sometime in 2013.