NTMA to issue bond soon

The NTMA will most likely issue a 10-year bond in the very near future to take advantage of the positive market sentiment towards Ireland following the agreement reached with the ECB over the restructuring of the promissory notes, says Lorcan Roche Kelly, chief European strategist with the US hedge fund, Trend Macro.

Yields on long dated Irish sovereign debt dropped below 4% before trading closed yesterday.

Mr Roche Kelly said the investment community’s perception of the deal was the it was a ‘five out of 10’ for what Ireland needs in terms of putting its debt on a sustainable path, but it was a ‘10 out of 10’ for achieving this deal.

The ECB is limited in what it can agree with member states because it is legally prohibited from any form of monetary financing. Consequently the restructuring of the promissory notes represented “the best deal possible”, according to Mr Roche Kelly.

Another benefit of the deal is that it tidies up the Government’s debt profile. “Promissory notes were a contingent liability. If there is one thing investors do not like it is uncertainty and what this deal does is that it removes this uncertainty.”

Nothwithstanding the deal, the national debt-to-GDP will still peak at 121%. Moreover, the domestic banks are still struggling with massive mortgage arrears and the unemployment rate remains at elevated levels.

One London-based fund manager, who did not want to be named, said investors had priced in this deal. “If it had not have happened then you would have seen a sell off of Irish bonds.”

The fund manager argues that international investors will take a wait and see approach to Ireland over the medium term. In particular, whether the ratings agencies upgrade the economy on the back of this deal and whether it triggers an inflow of private investment, he added.

Owen Callan, fixed income dealer at Danske Bank, was very bullish on the outcome. “The deal should see index fund investors buying longer-end Ireland (2025s) bonds, given that the “marketable securities” nature of the new bonds that we expect would see the average ‘duration’ of the Irish government bond market significantly increase, thus changing the way Irish bonds sit in these popular indices.

“We don’t believe that the market had priced in much upside from the deal, given the level of uncertainty involved, but we’re already seeing a strong bid tone to Irish assets as we close out today’s European session,” he said.