THE National Treasury Management Agency (NTMA) has successfully raised another €1.5 billion through the sale of Irish Government bonds, albeit at a higher than usual cost.
The cost of the borrowing this month was higher than previous auctions, with the interest rate — or yield — demanded by bond investors on 10-year bonds up from 4.72% to 5.54%. The yield on the six-year bonds auctioned yesterday actually declined marginally to just under 4.5%.
However, the latest bond auction means the NTMA has completed 90% of its proposed €20bn borrowing target for 2010 and that — added to the €5bn carried over from last year — means the Irish Exchequer is now fully funded into the second quarter of next year.
While this relatively comfortable funding position means the NTMA could have parked yesterday’s auction, waiting for potential lower yields in the coming months, a decision to continue with monthly bond auctions was applauded.
“It’s not about the sovereign, but more about sending out the right market signals to leave the door open for the domestic banks to raise required funding. Sorting out the banks’ funding issues is now the main game in town,” said Alan McQuaid, chief economist with Bloxham Stockbrokers. He added: “We think the NTMA will be fairly pleased with the results. Irish economic fundamentals are clearly improving and we feel the risks to GDP growth are tilted to the upside rather than the downside. Indeed, we continue to believe Ireland may surprise a few international commentators with the speed of the recovery.
“But the Government must continue to deliver on the tough fiscal measures to sort out the public finances. If it can continue to stand tall, then there is no reason why bond investors won’t reward the country with lower yield spreads.”
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