Debt costs double as government issues €1.25 billion in bonds

The price the Irish government pays for bonds in the bond market has doubled since March, with 10-year bonds now giving investors a yield of 1.5 percent. These are the highest borrowing costs since 2014.

The National Treasury Management Agency (NTMA) on Thursday held an auction of £1.25 billion worth of Irish government bonds.

Prices paid for credit are the clearest evidence yet of a rapid reassessment of risk and borrowing costs ahead of an expected round of rate hikes expected to begin later this summer.

The NTMA’s latest bonds are priced at a yield, practically the annual cost of interest, of 1.5 percent for debt repayable in 2032 and 1.789 percent for bonds repayable in 2045.

That’s well below historical norms, but is dramatically higher than the cost of borrowing in recent years. In March, the NTMA issued bonds maturing in 2032 at a yield of just 0.778 percent.

As recently as October, the cost of borrowing was virtually zero and in January 2021 the Irish government was able to borrow for 10 years at what is known as a negative interest rate – meaning investors were actually paying for the right to hold the bonds.

Ryan McGrath, head of fixed income strategy and sales at Cantor Fitzgerald in Dublin, said higher prices don’t mean Ireland isn’t being singled out in the markets but show the interest rate environment has changed.

“If you look at the spread (or premium) that Ireland is paying over Germany or France, there is no sign of stress,” he said.

The bigger picture will benefit from lower borrowing needs this year as higher-than-expected taxes are paid, he added.

“The NTMA has put a borrowing requirement of €10 billion to €14 billion in 2022, I expect it will now be around the €10 million mark, so Ireland will pay higher interest rates but borrow less,” he said .

This week’s bond auction means the NTMA has issued €5.75 billion of this year’s target so far. A deal scheduled for June has been canceled and with the summer break looming it will likely be September before the NTMA starts issuing bonds again. Debt costs double as government issues €1.25 billion in bonds

Fry Electronics Team

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