Borrowing costs fall again after first bond auction in four years
THE cost of borrowing fell to a record low yesterday as the National Treasury Management Agency auctioned off government bonds for the first time since 2010.
The NTMA has resumed regular bond auctions partly to prove its return to business as usual. Debt auctions are considered the ultimate indicator of how safe a sovereign’s market access is, as they rely on steady interest from a large pool of investors.
In syndicated debt sales (the process the NTMA used to complete its January bond sale) banks put the effort into rallying up bidders and have more time to do it.
The Government is already funded into 2015 as it has sold debt through syndicates of banks in 2013 and early in 2014.
The funding target for this year stands at €6-10bn, with €4.75bn already raised. It plans between three and seven more bond auctions this year.
The 10-year yield touched 2.99pc in London yesterday. That’s less than a third of the record highs seen in July 2011. The record low was matched by similar lows in several other countries.
“Whether we look at Spain, Italy, Portugal or corporates, they’re all doing well,” said Ciaran O’Hagan, head of European rates strategy at Societe Generale in Paris.
“What the governments need is higher growth or higher inflation to make their debt sustainable. These low yields give them the opportunity to try to engage in serious reforms in order to set the ground for higher growth in years to come.”
Yesterday’s bond sale “reflects a significant improvement in the outlook for the Irish economy and debt,” said Sandra Holdsworth, an Edinburgh-based investment manager at Kames Capita.
“We are constructive on this yield differential. We also expect the credit outlook for Ireland to improve further and for the Irish economy to continue its recovery.”
Demand was 2.9 times higher than the amount sold and came from “the full spectrum of investors,” including pension funds and insurers, which tend to hold on to the paper for longer than banks and hedge funds, one trader in Dublin said.
Traders said many investors had bought Irish bonds before the auction, fearing they may not be able to get anything from the sale.