* Irish 10-year yields fall to new record low below 3 pct
* Dublin holds first regular auction since bailout
* Auction marks normalisation of Ireland's market access
By Marius Zaharia
LONDON, March 13 Irish government bond yields
hit new record lows on Thursday before Dublin's first regular
debt auction since it was forced to take an international
bailout more than three years ago.
The auction of around 1 billion euros of 10-year bonds will
mark the full normalisation of Ireland's access to financial
markets following its successful completion of the 85 billion
euros EU/IMF bailout in December.
Traders said demand for Irish bonds has been strong this
year, coming from all types of investors, including pension
funds and insurers which tend to hold the paper for longer than
banks and hedge funds.
This pointed to a solid auction result, which some in the
market said could be a catalyst for another leg in the Irish
debt rally which has taken its 10-year yields to an
all-time low of just below 3 percent on Thursday from a peak of
over 15 percent in 2011, according to Reuters data.
"Ireland will absolutely fly," one trader said. "We've seen
solid demand all week and we think they will come aggressively
to the market."
At the height of the crisis in 2011 and 2012 Ireland was
shut out of markets as many investors feared its property market
crash could push the indebted sovereign to the brink of default.
But Dublin pushed through structural reforms swiftly, while
the European Central Bank eased worries about the euro zone's
future with its conditional promise in 2012 to buy a country's
bonds if it got into trouble.
With the economy recovering faster than its peripheral
peers, investors have bought heavily into the Irish success
story in the past year and ratings agency Moody's restored the
country's investment grade status in January.
BUSINESS AS USUAL
Indicating just how strong demand for Irish bonds is,
investors bid more than 14 billion euros at a 3.75 billion euro
sale of 10-year bonds via a syndicate of banks at the start of
It is easier to sell debt via syndications as banks have
more time to rally up investors, but it is costlier than
auctions as the sovereign pays fees to the banks managing the
sales. Debt auctions rely on steady interest from a large pool
of investors and are therefore considered the ultimate indicator
of how safe a sovereign's market access is.
Ireland is already funded into 2015, but it is resuming debt
auctions partly to prove its return to business as usual. Its
funding target for this year stands at 6-10 billion euros.
"This return to domestic bond auctions is the final stage of
Ireland regaining full access to capital markets," said Sandra
Holdsworth, an investment manager at Kames Capital.
"We expect Thursday's auction to pass successfully...
However one note of caution: at current levels of yield there is
little margin to protect investors should the economic outlook
worsen or fiscal discipline be lost."
Italy is the other euro zone country aiming to sell debt on
Thursday. It plans to raise up to 7.75 billion euros of 2016,
2021, 2028 and 2037 bonds only a day after it sold 4.5 billion
euros of new 10-year inflation-linked bonds.
Italian yields were 1 basis point lower at
3.41 percent, slightly above eight-year lows of 3.365 percent
hit last week. The recent pick up in yields should ensure a
smooth sale, traders said.
German 10-year Bund yields, the benchmark for
euro zone borrowing costs, fell slightly to 1.59 percent.