* Irish 10-year yields fall to new record low below 3 pct
* Dublin's first debt auction since bailout finds strong
* Auction marks normalisation of Ireland's market access
By Marius Zaharia
LONDON, March 13 Irish government bond yields
hit new record lows on Thursday as Dublin's first regular debt
auction since its 2010 international bailout found substantial
demand and cemented the return of full access to borrowing
Ireland sold 1 billion euros of 10-year bonds at a record
low average yield of 2.967 percent - a lower premium than that
offered by the bonds in secondary markets, where investors trade
debt that has been already issued.
Demand was 2.9 times higher than the amount sold and came
from "the full spectrum of investors," including pension funds
and insurers, which tend to hold on to the paper for longer than
banks and hedge funds, one trader in Dublin said.
"The results reflect very good demand," said Luca Cazzulani,
rate strategist at UniCredit in Milan. "Ireland has gained a lot
in investors' eyes, it has moved (away) from being perceived as
a peripheral 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.
"They have turned the corner," said Christoph Kind, head of
asset allocation at Frankfurt Trust, a firm which bought back
Irish bonds following the Moody's upgrade and remains
"constructive" in that market.
Ten-year yields last traded 5 basis points lower
on the day at 3.0 percent, having hit a record low of 2.981
percent at the start of the session. Traders said many investors
have bought Irish bonds before the auction fearing they may not
be able to get anything from the sale.
"There was a time when (demand only came from )... the
domestic investors and one or two accounts in the U.S.," said
one primary dealer in Irish bonds. "Now it's the U.S., Europe
and Asia - it's gone pretty global."
Data showing a shock 2.3 percent economic decline in the
fourth quarter had limited impact as it was offset by an upward
revision of third quarter figures. Analysts said 2014 data such
as falling unemployment suggest the recovery continues at a
NOTE OF CAUTION
Ireland is already funded into 2015 as it has sold debt via
syndicates of banks in 2013 and early in 2014.
It is resuming regular bond auctions partly to prove its
return to business as usual. Debt auctions are considered the
ultimate indicator of how safe a sovereign's market access is,
as they rely on steady interest from a large pool of investors
whereas in syndicated debt sales banks put more effort into
rallying up bidders and have more time to do it.
"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.
"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."
Ireland's funding target for this year stands at 6-10
billion euros, with 4.75 billion already raised.
Italy also sold bonds on Thursday. It issued bonds worth
7.75 billion euros, paying record low yields on three- and
15-year debt, a day after new Prime Minister Matteo Renzi
approved sweeping tax cuts to revive the economy.
Italian yields were 2 basis points lower at
3.40 percent, slightly above eight-year lows of 3.365 percent
hit last week.
German 10-year Bund yields, the benchmark for
euro zone borrowing costs, fell slightly to 1.59 percent.