Irish debt chief says can be choosy on bond return

DUBLIN Wed Sep 12, 2012 10:16am EDT

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DUBLIN (Reuters) - Ireland can afford to be choosy about when it returns to long-term bond markets even though recent moves by the European Central Bank (ECB) and German constitutional court have created positive momentum, the country's debt chief said on Wednesday.

Dublin has begun paving the way towards exiting official funding by returning to long and short-term debt markets in recent months, a move helped greatly by euro zone leaders agreeing at a summit in June to look at easing Ireland's bank debt.

John Corrigan said Ireland 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 an EU/IMF bailout next year - something he said was a "big, big concern" with investors.

"We're in a very comfortable position now so I think we can be a little bit more choosy about when we return but certainly the backdrop created by the German (constitutional court) ruling this morning is extremely positive," Corrigan told reporters.

"We have substantial cash balances and like I said we can be more choosy as regards future issuance. We're in a better place by virtue of our own actions and by virtue of the European backdrop this morning."

Ireland has hacked away at its post-bailout funding by launching two bond switches, its first issue of sovereign bonds that stagger capital repayments and raising 4.2 billion euros in new long-term debt.

Corrigan said the average interest rate of just under 6 percent on the long-term and amortizing bond issues was higher than the National Treasury Management Agency (NTMA) would expect to pay on an ongoing basis.

He said the German constitutional court's decision on Wednesday to give a green light to Europe's new rescue fund led to a particularly dramatic downward move for Irish bonds. The yield on Irish five-year debt fell 40 basis points to 4.1 percent, its lowest level since August 2010.

However the Irish government believes it can only make the required full market return at sustainable rates if it gets a deal on its legacy bank debt, which has helped push the state's debts towards 120 percent of gross domestic product (GDP).

Ireland's finance minister said on Wednesday that Dublin and the ECB disagree on the best way to cut a deal, although both he and the country's central bank governor have relayed their confidence in recent days that one would be reached.

UPGRADES CONSTRAINED

Corrigan, who met investors in Frankfurt on Tuesday while colleagues met others in Paris and the Netherlands, added that risks to a sustained return to monthly bond auctions included any veering off Ireland's bailout targets as well as a fresh escalation of the euro zone debt crisis.

He later said in a speech that ratings agencies had told the NTMA that they were happy with Ireland's bailout progress but that issues across the euro zone were constraining them from upgrading Ireland's credit rating.

Echoing comments made to Reuters on Tuesday by Finance Minister Michael Noonan, Corrigan said he does not anticipate the ECB having to buy Irish bonds as they are performing well. But the announcement of its new scheme should help push yields down at a treasury bill auction on Thursday, he said.

He said he hoped Thursday's second T-bill auction this year would mark the beginning of monthly short-term debt issues from here on out and that the yield for three-month paper would fall well below the 1.8 percent paid to sell paper of the same maturity in July.

"We're confident it will be much reduced compared with the last bond auction because of all the factors that have happened in the intervening period," Corrigan said.

(Reporting by Padraic Halpin; Editing by Toby Chopra and Susan Fenton)

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