NTMA set to issue €500m three-month treasury bill

For the sixth month in a row, the NTMA will issue a €500m three-month treasury bill tomorrow.

The move is seen as an attempt to maintain activity as the country prepares to exit the EU/IMF bailout programme in November.

As well as the six treasury bill auctions this year, the NTMA raised €2.5bn through a syndicated tap in January and €5bn through a 10-year bond in March. The yield on Irish 10-year debt was trading at 3.87% at close of trading yesterday, 230 basis points above the benchmark German bund, which closed at 1.57%.

Lorcan Roche Kelly, chief european strategist with the US hedge fund, Trend Macro, says there is only three weeks remaining if the NTMA wants to issue longer term debt before the summer break. “The Government is fully funded for this year, so there is no time pressure on the NTMA. I think it will be most likely September before a long-dated bond is issued.”

The US Federal Reserve will meet today. The markets will be looking for any signs that its chairman, Ben Bernanke, is preparing to scale back on quantitative easing. If he does make an announcement, then there would be a global sell off in bonds, which would affect Ireland, says Mr Roche Kelly.

Over the longer term, Ireland’s prospects of making a sustainable exit from the bailout programme hinge on the results of the bank stress tests, which will be carried out over the first half of 2014.

The external environment will be shaped by the German election results in September combined with any evidence that there is a shift in the eurozone to more growth oriented policies, notes Mr Roche Kelly.

“Looking ahead, the German economy should cruise along rather smoothly, driven by the solid labour market, recent wage increases, low interest rates and a gradual recovery of external demand. The main risks for the German economy remain stagnating growth in its main Eurozone trading partners, above all France, and a hard landing of the Chinese economy,” says Brussels-based chief economist with ING, Carsten Brzeski.

“Doubts about the strength of the German economy have almost become a new ritual at the beginning of each year. Indeed, over the last couple of years, the economy has often had a rusty start. Sometimes due to the euro crisis, sometimes due to the weather. In the end, however, the economy always managed to leave almost all problems behind, defying critics and concerns. Of course, all good things come to an end at some point in time. For the time being, however, Germany’s economic growth seems to be like an old rock star: it can’t get enough of comebacks.”