NTMA to raise €1bn as Irish bonds trade near low
The National Treasury Management Agency (NTMA) is planning a €1bn sale of 10-year bonds this week as Irish debt trades near record-low yields following the European Central Bank’s decision to delay any rate hikes to next year.
Thursday’s auction of the 1.1pc Treasury Bond 2029 is expected to be heavily oversubscribed.
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Once completed, Ireland will have raised at least €10.25bn towards meeting its 2019 target of €14bn-€18bn at a time when investors are seeking security amid the rock-bottom yields of AAA-rated government bonds.
Ryan McGrath, head of fixed income strategy and sales at Cantor Fitzgerald in Dublin, said the NTMA, headed by chief executive Conor O’Kelly, “resisted the temptation to offer a second bond, and the already tight bond technical surrounding the 2029s should ensure the supply will be easily absorbed”.
Irish 10-year debt was offering yields of just 0.32pc yesterday afternoon, five basis points above Friday’s record low of 0.27pc.
That bottom was reached in the hours following the ECB’s surprise announcement on Thursday that it intended to keep its benchmark lending rate at a record-low 0pc until at least mid-2020.
Markets previously had priced in an expected rate hike in late 2019, driving investors to snap up bonds capable of offering even meagre returns.
As demand for bonds drives up their price, their yields decline. In recent days, increased demand for bonds driven by fears of potential shocks from US-China trade tensions and Brexit uncertainties has helped to drive the yields of Germany, Switzerland, the Netherlands and Denmark into negative territory.
For example, German 10-year bonds were trading some 55 basis points below Ireland’s yields in trading yesterday, representing a -0.22pc return.
Their Swiss equivalents remained at Friday’s level of -0.54pc. Switzerland’s bourse was closed yesterday for a public holiday.
Investors may find bonds with minimal or negative returns attractive for a variety of reasons, including for use as collateral on loans or to meet an investment portfolio’s liquidity and security requirements.
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