Ireland returned to short-term debt markets on Thursday for the first time since before its 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 ($628-million) of Treasury bills at an average yield of 1.8 per cent and said it hoped to return to long-term debt markets with a syndicated issue later this year or early next at a maturity of two years or more.
Dublin, effectively shut out of capital markets before the €85-billion ($107-billion) bailout by the European Union and International Monetary Fund, will first look to run three or four more short-term auctions this year and extend maturities from three to six months.
Ireland is the only country that has not sold T-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.
Unlike the rest of the bailout club, Ireland posted modest economic growth last year amid turmoil across the euro zone, and sees itself as the only country capable of delivering a rare good news story.
The National Treasury Management Agency (NTMA) said it was encouraged that the auction was 2.8 times subscribed and that while it did not have precise figures, there was strong evidence that the bulk was distributed in continental Europe.
The agency’s chief executive officer, John Corrigan, said Dublin had to stick to the terms of its bailout deal and hope the “wider mood music in Europe” improves before it issues long-term debt.
Likening returning to the market to “a rabbit trying to run across” a motorway, he told reporters: “You’re looking for a gap in the traffic to make sure that a big bloody juggernaut doesn’t come and run you down, because you’re so heavily dependent on the external factors over which you have no control and internal factors, some of which you have no control over.”
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 when leaders agreed to look at improving Ireland’s bank bailout.
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.
European Central Bank chief Mario Draghi said the auction was “a success that should be properly celebrated” and was testimony to Ireland’s extraordinary efforts.
With funding needs for 2014 totalling about €18-billion and cash reserves coming in short of that, Dublin must issue debt next year to avoid a second bailout and analysts said details of any bank deal would need to emerge first.
“It [the auction] is a small positive step but there’s still more to do,” said Stephen Lyons of Davy Stockbrokers. “As to how it progresses to the ultimate objective of a bond market return, that comes down to whether we continue to hit our budgetary targets, and equally as important, whether we get further clarity on banking relief.”
Yields on benchmark Irish 2020 bonds have fallen by almost 100 basis points since the summit and were over 50 basis points lower than their Spanish counterparts at 6.25 per cent after the auction, little changed on the day. (A basis point is 1/100th of a percentage point.)
Spain, whose 10-year yields rose sharply on Thursday, sold three-month debt at an average yield of 2.36 per cent last week while Italy had to pay 2.96 per cent to auction six-month paper a day later.
“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 per cent is not only lower than the grey market before the auction but is approximately where Spanish letras (T-bills) are trading,” said Crédit Agricole rate strategist Peter Chatwell.
Madrid also sold €3-billion 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.
Analysts have cautioned that the real test for Ireland will be maintaining regular auctions without another twist in the euro zone’s debt crisis forcing a damaging withdrawal.
A successful run may also see the NTMA attempt another bond switch after it cut €3.5-billion from its hefty, post-bailout borrowing requirements in January and Mr. Corrigan said he hoped to be able to do so.
“Irish sovereign debt has been on a roll,” 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 per cent of GDP last year and the economy is expected to more or less stagnate this year,” he added.
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