herald

Monday 23 October 2017

State looking to borrow €500m

BONDS

THE Government will look to borrow €500m on the markets on Thursday in a scheduled bond auction. It is less than the amounts raised in previous deals this year, despite falling borrowing costs.

The yield, or cost of borrowing for the State fell to a new low yesterday, of just 2.310pc to borrow for 10 years.

The auction will be a "tap" or add-on to an existing bond issue due to be repaid in 2024. That bond carries an interest rate of 3.4pc, so the "tap" will be sold at a discount to reflect the current pricing in the market.

Despite the low cost of finance the National Treasury Management Agency (NTMA) is seeking to borrow less than the amounts raised in auctions earlier in the year when yields were higher.

The NTMA previously "tapped" the 2024 bond deal raising €1bn each in March and April and €750m in May.

Including this week's €500m deal, the NTMA will have raised €7bn of the €8bn it has indicated will be borrowed on the markets this year.

However, there is increased speculation on the market that the NTMA could borrow more than planned, to take advantage of market sentiment.

"Last week's positive growth and exchequer data open up the possibility of an additional benchmark issue later in the year," bond trader Ryan McGrath said in a note to investors yesterday.

Based on prices yesterday Ireland would pay slightly more than 1pc extra to borrow for 10 years compared to Germany - regarded as the benchmark for low risk euro area bond.

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