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Government halfway to raising €25 billion
Sunday, April 26, 2009 By David Clerkin Markets Correspondent
Ireland reached the halfway point last week in borrowing the €25 billion it needs from international investors to pay the government’s bills this year.

The signs are, however, that it won’t be all plain sailing from here. Investors displayed little enthusiasm for the latest bond auction operated by the National Treasury Management Agency (NTMA), the state’s specialist funding arm.

The weak appetite for IOUs issued by the Irish government resulted in barely enough demand to meet the supply on offer. The NTMA sought €1 billion last Tuesday, split between five-year and nine-year repayment periods, and received offers to lend totalling €1.24 billion.

This compared poorly with the €3 billion offered when the NTMA sought to borrow €1 billion over similar terms just last May.

Tuesday’s issue was split into €700 million over five years and €300 million over nine years. While the nine-year bond was oversubscribed by a factor of 1.6 (meaning bids totalling almost €500 million were received), the five-year bond was oversubscribed by a factor of just 1.1 (meaning bids totalling €770 million were received, marginally above the €700 million issued).

The nine-year bond attracted an average annual yield of almost 5.1 per cent, while the five-year bond carried an average yield of 4.2 per cent. By contrast, a mortgage customer of Bank of Ireland could have fixed their borrowing rate for five years at just 3.6 per cent last week.

The NTMA said the reasons for the weaker demand included much tougher funding conditions - Britain and Germany also struggled to get fundraising exercises off the ground last week - and a reduction in the yields attached to Irish government paper in recent weeks.

The latter development could be viewed as a positive feature, however, as it means investors are not demanding the same returns as they had been in return for the risk of lending to the Irish government.

But overseas bond analysts were more sceptical, citing concerns over the extent of the challenge involved in restoring order to the Irish government’s finances against a backdrop of falling tax revenues, higher social welfare payments and perceived foot dragging in reducing government spending.

Ireland’s problems in selling debt to overseas investors have been compounded by a sharp increase in debt issuance by other European governments, which are also borrowing more than in the past to fund stimulus packages aimed at boosting their slowing economies.

Analysts have warned that Ireland may struggle to get the attention of investors as the government bond market becomes more crowded and bond buyers cluster around issues from larger eurozone countries, such as Germany and France, at the expense of smaller economies.

There were more encouraging signs later in the week, however, as a fresh issue of Irish Treasury bills, a form of short-term borrowing over periods of between one and six months, raised €1.6 billion. The issue was heavily oversubscribed, attracting bids worth €4.5 billion.

The NTMA will tap the markets once again early next month, with a fresh issue of Treasury bills. It will hold two bond auctions in May and June before publishing dates for future debt issuance.

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