NTMA ready to issue annuity bonds

The National Treasury Management Agency is to begin issuing annuity bonds to Irish-based pension funds in the coming weeks in what would be another significant step towards an anticipated wholesale return to the long-term bond markets next year.

The agency, which is responsible for Government borrowing and the national debt, said it was open to issuing such bonds as long ago as the beginning of last year but said yesterday that appetite has now picked up for such products in the domestic markets.

Furthermore, the move is not reliant on new, slow-moving sovereign annuities legislation, aimed at making Irish-issued bonds more attractive to domestic pension funds.

The move could also raise up to €2bn for the State, according to early estimates.

“The NTMA will not be issuing sovereign annuities. Rather, it will issue annuity bonds which are particularly suited to the manufacture of annuity products because they are amortising bonds that provide a series of equal payments each year over their life,” an agency spokesperson said yesterday.

They added that the NTMA is “ready to issue” these amortising bonds subject to market demand and yield, but further added that the requisite appetite does seem to be there.

“The NTMA anticipates that there will be demand from the Irish pensions industry for these bonds as pension fund trustees decide how to address any funding gaps in their schemes,” said the spokesperson.

“Amortising bonds may be issued at a price determined by the NTMA or may be auctioned in the same manner as normal bond auctions, and a decision on this will be made at the time of issuance.

“The NTMA is not prescriptive about any particular term for these bonds, but based on industry needs, it anticipates that they will be for a range of maturities of up to 35 years.”

This would technically be Ireland’s first foray into raising funds via the long-term bond markets since the troika’s bailout programme began in 2010, although a wider overseas bond issuance exercise is not expected until the latter half of 2013, when that bailout programme is drawing to a close.

When first mooting the issuance of such bonds on the domestic market, last year, the NTMA hinted that they could be issued at “considerably higher yields” than those available in other EU countries.

The move was being seen as a potential lifeline to many Irish pension fund trustees attempting to put viable funding plans in place.

The Bloomberg news service yesterday quoted Dublin-based bond brokerage Glas Securities as saying “it is unclear how much demand can be generated”.

“As an initial guesstimate, we see a €1.5bn-€2bn range over an 18-month period as a reasonable projection,” it said.