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Irish yields plunge by half at Auction

Thursday, September 13 12:18:55

The NTMA sold treasury bills for the second time this year today and saw the cost of doing so more than halve to the same level as Italy as it continued to inch back into debt markets against a more favourable backdrop in Europe.

The Government has recently begun paving the way towards a full return to long and short-term markets to exit its EU/IMF bailout, a move helped greatly by euro zone leaders agreeing at a summit in June to look at easing Ireland's bank debt.

More recent moves by the European Central Bank (ECB) and German constitutional court created fresh momentum and Dublin took advantage by selling 500 million euros of three-month T-bills at an average yield of 0.7 percent.

That compared to the 1.8 percent it paid to sell the same amount of three-month paper in July, its first auction in almost two years, and the 0.7 percent yield that Italian debt of the same duration fell to at an auction on Wednesday.

The NTMA hopes that today's auction will mark the beginning of monthly short-term debt issues and it will be encouraged that the issue was 3.0 times subscribed, an improvement on July's 2.8 bid-to-cover ratio.

"All in all it appears to be a very strong auction, another successful re-engagement by the National Treasury Management Agency on our way to full market re-entry," said Ryan McGrath, a bond dealer at Dolmen Securities in Dublin.

"From our dealings this morning, we would suggest that a lot of the demand was internationally based."

Finance Minister Michael Noonan hailed the auction result.

"This results builds upon the NTMA's return to markets this summer and once again highlights the improvement in market sentiment towards Ireland," he said in a statement.

While Greece has consistently auctioned three-month debt and Portugal has tested appetite with 18-month bills, neither fellow bailout recipient has been able to match Ireland's long-term issue in late July when it raised 4.2 billion euros in new debt.

Ireland's debt chief said yesterday that the Government was in a much more comfortable position after reducing to 2.4 billion euros a 12 billion euro funding cliff looming just after it plans to exit the EU/IMF bailout next year, meaning it can afford to be choosy about when it returns to long-term bond markets.

However with Irish five-year debt trading at 4.1 percent, 50 basis points lower than Spain and well below the 5.9 percent Ireland paid to sell bonds maturing in 2017 in July, the NTMA may be tempted to issue longer-dated date sooner rather than later.

"We would not be surprised to see the NTMA look to return to the term debt markets in the coming weeks should the rally continue and today's bill auction run smoothly," Dublin-based Glas Securities said in a note in advance of the auction.