Irish borrowing costs edge lower in €400m auction

YIELDS at a treasury bill auction yesterday fell from an auction two weeks ago after the Government announced on Wednesday that it would gradually wind down Anglo Irish Bank.

However, a smaller amount of bills than usual was sold in a bid to keep costs down and send a confident signal to markets while the Government works out the final cost of bailing out the banks.

Markets are nervous that the escalating cost of dealing with Anglo’s property binge combined with the biggest budget deficit in the European Union and anaemic economic growth could drive the country deeper into crisis.

A day after presenting the Anglo plan, the National Treasury Management Agency sold €150 million of five-month treasury bills and €250m of seven-month paper. Average yields of 1.925% and 2.19% fell from an auction two weeks ago.

Bid-to-cover ratios also stayed strong at 9.4 and 5.4 respectively as Ireland gradually reduces the amount of debt it has sold from €1.2 billion at its July auctions.

“They restricted the supply slightly to make sure they had good bid-to-cover ratios and to ensure lower yields to show that confidence in Ireland is still solid,” said Brian Devine, economist at NCB Stockbrokers. “As clarity comes through the banking sector things should improve further on the yield front.”

The troubles with Anglo re-ignited fears of a full-blown Irish debt crisis and weighed on the euro and other European sovereign borrowers in recent weeks.

With treasury bills mostly bought by domestic investors, analysts said the auction was insufficient evidence of a real improvement in international sentiment towards Ireland.

The premium investors demand to hold Irish 10-year paper over bunds dropped by 9 basis points to around 370 basis points, just 19 bps off a euro lifetime high hit on Tuesday.

Finance Minister Brian Lenihan acknowledged that Wednesday’s decision did not give complete clarity to investors but he believed bond markets would wait for the final bailout bill to be worked out.

Shares in AIB rose yesterday after Mr Lenihan said sales of its assets in the US and Poland were at an advanced stage. AIB needs to raise €7.4bn in capital before year-end and Mr Lenihan said bidding for its 70% stake in Polish lender Bank Zachodni WBK had closed with a number of substantial bids received.