Irish State raises €1.5bn at historic low bond cost

Auction deals boost confidence the Government will be able to finance  huge costs of fighting Covid-19

Conor O’Kelly, CEO of NTMA which raised varying amounts of money in auctions of the three bonds, including for a seven-year bond, its 10-year bond, and a 15-year bond. Picture: Conor McCabe Photography

The State has raised a total of €1.5bn selling three bonds at interest rates which for their type marked the lowest costs in its history, boosting confidence the Government will be able to finance the huge costs of fighting the Covid-19 pandemic just days before it reveals its 2021 budget plans.

The National Treasury Management  Agency (NTMA) raised varying amounts of money in auctions of the three bonds, including for a seven-year bond, its 10-year bond, and a 15-year bond.

All three of the bonds raised money at their cheapest levels for their types, with most of the €1.5bn haul raised from two of the bonds at negative rates. 

That means investors effectively paid the State for the privilege of holding their money during these times of economic crisis across the globe.

It is not the first time the State has raised money through its so-called benchmark bonds at negative rates. 

The NTMA has through auctions of benchmark bonds so far raised €22.75bn this year, at an average positive yield of just 0.2%

As recently as July, it raised millions of euro through the 10-year benchmark bond at a negative rate of 0.02%.

However, the new auctions have set new record low costs of finance for the State for bonds of their type.

They come at a time when the Irish Government and many others across Europe face paying for the escalating economic costs of the health crisis, amid fears that a second wave of the disease will extend through the autumn and winter months.

Amid the huge costs of funding the health fight-back and the costs of keeping the economy afloat through income and business supports, the crisis has led to a dramatic reversal in the Government’s finances.

From a small surplus in 2019, economists say the Government is facing a budget deficit of around €25bn this year, and a further deficit of €15bn in 2021, even before it accounts for any additional Covid-19-related spending in the budget next week.

Not all of this year’s deficit will be financed through the markets.

The NTMA has through auctions of benchmark bonds so far raised €22.75bn this year, at an average positive yield of just 0.2%.

It is likely it will complete its €24bn in funding, representing the top ceiling of the amount it has in the past said it would raise in 2020, when it runs the last debt auction of the year in November.

Some eurozone countries can raise money at even cheaper rates, with their bonds trading even deeper into the territory of negative interest rates.

Germany’s 10-year bond trades at a negative rate of 0.51%, indicating the relative strength and confidence of investors in Europe’s largest economy.

At €650m, the largest amount tapped from the debt markets in the auctions on Thursday morning was from a bond that matures in 2027, at a negative yield, or interest rate, of 0.42%.

The auction of the 2030 bond raised a total of €325m, at a negative rate of around 0.19%, while the NTMA raised a further €525m from the 2035 bond, in this case at a positive rate of around 0.06%.

Even though this 15-year bond will pay some yield to investors, it too marks the lowest cost ever raised by the State for a benchmark bond of its maturity type.