NTMA plans summer bond issue

The National Treasury Management Agency is hoping to return to the bond market before the end of the summer, but the key to selling Irish long-term bonds will be the uptake by Irish pension funds.

A spokesperson for the agency reiterated the position, saying: “The NTMA previously indicated that it hopes to issue some treasury bills during the summer and that remains the position.”

Davy’s global strategist, Donal O’Mahony, said that the key to solving Ireland’s funding issues was incentivising Irish pension funds to buy Irish paper.

Mr O’Mahony said that he expected the NTMA’s issue over the summer to be a baby step towards a fully fledged selling of long-term debt before the end of the three-year programme of troika funding which finishes in 2013. “You can expect the treasury bills issue to probably occur in the next four weeks,” he said, but cautioned there was a lot of event risk posed by the problems in Spain and Greece.

In his analysis however, the international markets are not who we should be looking at to buy government paper. Mr O’Mahony said the elephant in the room is the reintroduction of the minimum funding standard for Irish pension funds.

At the moment, of the €83bn of government debt issued, Irish savings and pension funds only own €450m worth of Irish paper. “Irish funds only own token amounts of Irish government debt,” he said.

Legislation to allow for the reintroduction of the minimum funding standard, suspended in 2009 when the financial crash put 90% of schemes into an under-funded situation, was passed by the Dáil in April.

Mr O’Mahony said that the reintroduction of the funding standard could create a “virtuous circle”. The circle would help return pension funds to solvency and improve Ireland’s funding abilities in its own bond market.

Irish pension funds are currently buying German bunds that have long-term interest rates of 1.8% over 30 years. If they were incentivised to buy Irish bonds or annuities linked to Irish bonds at 6% or 7%, the funds would be in a much healthier situation and it would create a source of demand for Irish bonds.

“For far too long we have for a number of structural reasons chosen to prop up German borrowing needs rather than our own.”