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Ireland back to debt market at lower rate than Spain
July 5, 2012 / 10:47 AM / 5 years ago

Ireland back to debt market at lower rate than Spain

DUBLIN (Reuters) - Ireland returned to short-term debt markets on Thursday for the first time since before its EU/IMF bailout in November 2010, paying less for three-month paper than Spain which has avoided going to international lenders for a full sovereign rescue.

In a tentative first step following a near two-year hiatus, Ireland sold 500 million euros of treasury bills at an average yield of 1.8 percent.

Dublin, effectively shut out of capital markets before the 85 billion euro ($107 billion) bailout, is likely to run a number of t-bill auctions before attempting a long-term issue towards the end of this year or early next.

Ireland is the only country that has not sold treasury bills during its bailout and given that Greece has consistently auctioned three-month debt and Portugal has even tested appetite with 18-month bills, analysts saw Dublin having few difficulties.

However Ireland, which unlike the rest of the bailout club was able to deliver modest economic growth last year amid turmoil across the euro zone, sees itself as the only country capable of giving Europe a rare good news story and was pleased that Thursday’s auction was 2.8 times subscribed.

“We are encouraged by the strong demand and the presence of significant international interest in today’s auction. However, we are conscious that this is only the first step towards our ultimate goal of full access to the capital markets,” NTMA Chief Executive John Corrigan said in a statement.

Ireland’s finance minister Michael Noonan said the auction marked an important milestone on Ireland’s continuing path to recovery and showed the market have reacted positively to the country’s strong fiscal performance.

The NTMA, which had said it planned to restart the auctions this summer, announced the resumption on Tuesday on the back of a surge of investor confidence following last week’s EU summit where leaders agreed to look at improving the terms of Ireland’s bank bailout.

“Every aspect of the t-bill auction is better than expected. The total amount of bids is very impressive and the yield of 1.8 percent is not only lower than the grey market before the auction but is approximately where Spanish letras (treasury bills) are trading,” said Credit Agricole rate strategist Peter Chatwell.

A source close to the NTMA said it hoped to undertake further auctions over the remainder of the year.


Yields on benchmark Irish 2020 bonds have fallen by almost 100 basis points since the summit and were almost 30 basis points lower than their Spanish counterparts at 6.27 percent before of the auction, little changed from Wednesday.

Spain sold three-month debt at an average yield of 2.36 percent last week while Italy had to pay 2.96 percent to auction six-month paper a day later.

Madrid also sold 3 billion euros of medium- and long-term debt on Thursday, at the top end of its target, though doubt over the details from the summit forced it to pay the highest rate for its 10-year bond since November.

Spain secured European Union aid of up to 100 billion euros for its battered banking sector last month. However, concerns persist that the euro zone’s fourth-biggest economy will eventually need a full sovereign bailout like Ireland, Greece, Portugal and Cyprus.

Analysts have cautioned that the real test for Ireland’s NTMA will be maintaining regular access to the market without another twist in the euro zone’s debt crisis forcing a damaging withdrawal.

A successful run of auctions may also see the NTMA attempt another bond switch after it cut 3.5 billion euros from its hefty, post-bailout 2014 borrowing requirements earlier this year by offering holders better terms to extend the maturity of their debt by a year.

“Irish sovereign debt has been on a roll. The rally dates back to the middle of last year when foreign investors started taking a much more favorable view of Ireland’s adjustment program,” said Nicholas Spiro of Spiro Sovereign Strategy.

“However Ireland is hardly out of the woods. Domestic demand continues to contract, the fiscal deficit was 13 percent of GDP last year and the economy is expected to more or less stagnate this year,” he added.

Additional reporting by Lorraine Turner in Dublin and Kirsten Donovan in London; Editing by Jeremy Gaunt and David Stamp

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