NTMA taps €1bn in new debt as markets bet on ECB rate cuts  

Huge amounts of tax revenues flowing into the Exchequer do not require the NTMA to tap government debt markets frequently.

In a rare auction, Ireland has borrowed a total of €1bn in new debt, as bets increase that the European Central Bank will start cutting interest rates in June.  

The National Treasury Management Agency (NTMA), the Government's debt issuing office, raised €500m by issuing a 10-year bond that matures in October 2034 at a yield of just under 2.75%, and a further €500m from a 20-year bond that matures in October 2043, at a rate of just under 2.95%. 

The auction is a rare opportunity for domestic and international investors to buy Irish sovereign debt paper because the healthy public finances, thanks to the huge amounts of tax revenues flowing into the Exchequer, do not require the NTMA to tap government debt markets either frequently or for any significant amounts of debt. 

Investors are also effectively taking a €1bn bet that eurozone inflation will be tamed for the next 10 and 30 years, a further signal that official ECB interest rates will be lowered before too long. 

The almost 2.75% yield for investors to buy into 10-year bonds compares with the market rate of 2.4% for the equivalent 10-year bond for German debt paper. The spread or difference between the Irish rate and the lower German rate has closed dramatically in recent years. 

Government debt market rates suggest that Ireland — just over 10 years after regaining access to international government debt markets — can now borrow more cheaply than many governments in the eurozone, including the 2.85% market rate for France's 10-year bond, the 3.2% rate for Spain, and Italy's market rate of 3.67%. 

Economist Simon Barry said that the closing of the gap between Irish and German yields reflects the high level of confidence by international investors in the creditworthiness of the Irish State. 

Outside the eurozone, and with higher inflation and higher official rates, Britain pays around 4% to raise any new 10-year debt.   

In a presentation to institutional investors earlier this month, the NTMA hailed the much-improved creditworthiness of the State. It said that the "ultra-low rate era" was at an end and meant that the average cost of Irish debt was at a cost of 1.5% just beyond 2025. 

Ahead of Thursday's auction, the NTMA reiterated it planned to raise a maximum of between €6bn and €10bn in debt this year. The latest auction brings it halfway of the lower range in its estimate. 

Following the bailout, NTMA officials again highlighted the "smooth profile" of Ireland's sovereign debt repayments out to 2051. They told potential investors the State would likely issue little new debt in the coming years, while "only a third of debt is set to mature in the next five years". 

Over half of some recent bond issuance was held by continental European banks, funds, and pension and insurers. NTMA officials also highlighted the €25bn in cash held by the agency at the end of last year. 

The €13bn before interest payments the NTMA holds in a separate account ahead of a final judgment on the long-running Apple tax case is not counted toward the cash balances, the agency reiterated.