Concern over yield on Irish syndicated bond issue

The yield on the syndicated tap bond issue on Tuesday was below the rate secured when Ireland had a AAA credit rating, but the spread against the 10-year German bund remains a concern, according to NTMA chief executive John Corrigan.

The spread on the syndicated tap was 280 basis points. The Governor of the Central Bank, Patrick Honohan, said this level was unjustified in view of the fiscal adjustment that has been undertaken in this country. Mr Corrigan said a tighter spread hinged on a number of issues, including the country’s credit rating.

Moody’s still has Ireland at sub-investment grade, which Mr Corrigan described as “depressingly low” but reflected the dislocation in the eurozone between core and periphery countries.

However, NCB Stockbrokers’ head of fixed income sales, Cathal O’Leary, said: “We view sales like yesterday’s as helping to close the gap between Ireland’s current rating and investment grade. A factor in Ireland’s downgrade by Moody’s last year was a lack of market access, so it is not beyond the realm of possibility that the decisive steps taken by the NTMA over the past year to remedy this will culminate in an upgrade.”

The NTMA chief said the big question now was when the eurozone economy returned to more normal economic conditions would the Irish yield move towards the German rate or would the opposite happen.

And because of the still relatively high levels of market turbulence, it was still not possible to put together a calendar of bond issuances that the agency released at the start of the year before the crisis erupted.

The NTMA has been on a number of roadshows meeting investors over recent months. But it did not include any deal on the €64bn in bank debt in its investor presentations. However, investors have priced in some good news in the Government’s attempts to restructure the bank debt.

The Government is paying a lot more for money it is raising on the capital markets than it is getting by putting that money ondeposit. Mr Corrigan acknowledged that it would be more cost effective to tap the markets towards the end of this year and closer to when it will be used. But because of the uncertain nature of the markets, the NTMA would be looking to raise capital when market conditions were most favourable, said the NTMA chief.

In Tuesday’s syndicated tap deal, 87% of the investors were international institutional investors. Mr Corrigan said he hoped there would be more domestic investors in future. Moreover, the NTMA would look to issue longer- dated bonds from now as any further shorter-dated bonds would create a new funding cliff as there is already a glut of bonds maturing over the next 3-4 years.

The sale of Bord GáisEnergy is very much on track, according to the head of New Era, Eileen Fitzpatrick. New Era is the agency responsible for divesting state assets. Ms Fitzpatrick declined to disclose any details of the Bord Gáis sale.