NTMA hopes to raise €500m from sale of treasury bills

The National Treasury Management Agency will auction €500m of three-month treasury bills tomorrow as part of its ongoing engagement with the market prior to the exit from the bailout programme in November.

The NTMA has made a series of successful issuances since July — the first time it tapped the markets since the IMF/EU bailout of Nov 2010.

The Government set a fundraising target of €10bn this year as part of a strategy to have enough cash buffers in place to cover borrowing requirements for 18 months.

The agency raised €5bn through the sale of a 10-year bond in March and a further €2.5bn through a syndicated tap in January.

The yield on the 10-year bond at the time of issue was 4.15%, although it is now trading at 3.46% compared with the benchmark German bund, which is better than Spanish and Italian debt of the same maturity.

However, the prospects of the country making a sustainable exit from the bailout programme over the medium term hinge on the complexion of the banks following the next round of stress tests.

The date of the next Prudential Capital assessment review by the Central Bank still has to be determined, although it looks like it will be the end of this year. The troika want the stress tests done prior to exiting the programme, whereas the Government wanted them to coincide with the European Banking Authority stress tests next March.

The banks are working their way through mortgage arrears and SME-impaired loans. If they need capital after the stress tests, it could put huge pressure on the Government. Under the terms of the proposed EU banking union, the ESM or a common resolution fund will be used to recapitalise banks.

However, if this option is not available to the Irish banks, it will put huge pressure on the Government and could force up yields to unsustainable levels once again.