NTMA auctions €1bn of bond

THE National Treasury Management Agency yesterday auctioned €1 billion of its new benchmark 3.25% Treasury Bond 2009.

The money will be used to finance government spending and to replace maturing debt that has to be paid off, a spokesman for NTMA confirmed yesterday.

Since the euro was launched, foreign investors have bought into government bonds and now account for 65% of the total.

Prior to the euro launch, only 20% of government bonds were held by institutions outside

Ireland. They are bought by pension funds across the EU and by institutions looking for safe investment outlets for their clients.

Ireland currently enjoys an AAA rating from the top three credit rating groups in the world Standard & Poors, Moodys and Fitch. As a result of this, the interest rate offered on the bond at 3.37% was just fractionally higher than the rate offered by the German government to attract buyers of their bonds.

Not only was this the largest bond auction ever held by the NTMA, it attracted bids from Ireland's eight primary bond dealers , three of which are based in Ireland and five in mainland Europe.

The bids to purchase the bonds was 2.3 times the amount on offer. The average yield on the €1 billion sold in the auction was 3.37%, just 2.5 basis points (hundredths of one per cent) more than comparable German government bond yields for the same maturity. NTMA was set up in 1990, primarily to mange the national debt. Its main objective was to save on the debt every year by borrowing and raising money at the most competitive rates.

In the past five years, the NTMA (or Aunty Mae as it is affectionately known) has saved the State an average of €321m in each of the last five years, making a total saving of €1.6 billion over the period.

NTMA was set up in 1990 by the then Finance Minister Albert Reynolds. Its function was to borrow money for the Exchequer and to manage the national debt. Since then, its functions have been extended to include responsibility for the National Pensions Reserve Fund, now worth €7.3bn, and the State Claims Agency to manage personal injury claims against the State as a means of saving on costly legal bills.

However, its core function remains management of the national debt and borrowing on behalf of the State, which is what the agency did yesterday when it raised the €1bn. The NTMA said it intends to continue to increase the size of the bond through further auctions until it reaches €5 billion.

The bond should continue to be attractive for investors because of the positive background of stable public finances in Ireland.