Hedge funds buy large amounts of Irish sovereign bond debt                 

The ECB’s huge bond-buying programme has helped boost the activity of hedge funds in eurozone sovereign debt sales. File picture.

Hedge funds have stepped up their activity in buying up Irish government bonds sold by the National Treasury Management Agency (NTMA) in the past year. 

An analysis by the Irish Examiner of Irish sovereign bond sales by the NTMA since the onset of the Covid-19 economic crisis show that hedge funds have accounted for a share of 13% of the bonds sold by the Government in a recent sale.

That proportion of Irish sovereign debt bought by hedge funds is almost double the share hedge fund buyers secured in a NTMA debt sale a year earlier. 

In the most recent sale, in April, hedge funds acquired 13% in the sale of €3.5bn debt of a new 20-year benchmark bond.

Hedge funds would traditionally offload purchases to make a quick profit, selling in the secondary market within hours or days of making their purchases in a sale of sovereign debt. 

The amount acquired by hedge funds in the €3.5bn sale last month compares with a share of 7% acquired by official institutions, buyers which include sovereign wealth funds and central banks.

A year earlier, in April 2020, the NTMA raised €6bn after whittling down allocations from an order book of €33bn for the issue of debt of a new seven-year benchmark bond. 

Hedge funds accounted for a share of 8% of the total bonds sold in that sale. 

The ECB’s huge bond-buying programme, which is designed to keep sovereign interest rates at rock-bottom levels during the Covid economic crisis, has helped boost the activity of hedge funds in eurozone sovereign debt sales. 

The bond-buying has meant that eurozone governments like Ireland have not faced another sovereign debt crisis despite needing to raise many billions to pay for their Covid costs.                    

A leading market participant told the Irish Examiner that the number of hedge funds has increased in recent times. 

The allocation secured by any individual hedge fund has decreased, but the number of hedge funds involved in the market has expanded, according to the senior source.

Some hedge funds have longer horizons and may hold their sovereign bond purchases for weeks or months and do not necessarily sell back into the secondary market within minutes of acquiring them from a debt office to make a quick profit.

“The growing trend we have seen is that as more hedge funds have got involved, the average length of time hedge funds hold the bonds has also increased,” the source said. 

Hedge funds help in the day-to-day functioning of the market, the expert said. 

A spokesman for the NTMA said that since October 2017, hedge fund participation has averaged at around 10%. 

Hedge funds secured 13% of the allocation in a €4bn syndicated sale in April 2018, the spokesman said.  

"No orders are excluded but when allocating we may assign a lower percentage or place an upper nominal limit for an institution where we feel the order has been inflated," the NTMA said.