Rising yields at the NTMA bond auction show a changed interest rate environment for government bonds

The government paid just over 2.2 percent for loans in the markets at its latest benchmark bond auction on Thursday morning – about seven times what it was in January.

The National Treasury Management Agency (NTMA) has raised €1.25 billion in new funds in two tranches, a 10-year bond maturing in 2032 and a longer-term issue maturing in 2050.

The 10-year money sold at a yield of 2.216 percent, about 0.6 percentage point above German bunds, while the 2050 bond had a higher rate of 2.646 percent.

The price of the 10-year bond was about seven times higher than NTMA’s first transaction this year, when it raised €3 billion in a syndicated deal at a price of just 0.387 percent.

The agency has now completed 70 per cent of its expected €10 billion in fundraising for the year, about half of what the government borrowed to fund Covid spending in 2021.

Thursday’s auction comes just a week before the European Central Bank (ECB) is expected to hike interest rates by as much as 0.75 percent and was a test of pricing and the market’s appetite ahead of the 2023 budget later this month.

Yields on Irish and European debt have been rising for weeks, standing at just 1.3 percent on August 4, but more aggressive anti-inflation rhetoric from the ECB has led to steadily rising expectations of interest rate hikes.

However, the state is with 27.5 billion

As a result, the government’s blended borrowing cost fell from 2.2 percent in 2019 to just 1.5 percent in early August, according to NTMA’s latest investor presentation.

And the government’s modest borrowing needs this year – the Treasury is on track to a €5 billion surplus – means the NTMA is spending €6.3 billion of its cash balance rather than relying on market funding .

With GDP growth estimated at around 5 percent this year and tax revenues rising by more than 25 percent on key headings, the cost of debt servicing is unlikely to become a headwind for government finances anytime soon.

https://www.independent.ie/business/irish/rising-yields-at-ntma-bond-auction-reveal-changed-rate-environment-for-government-debt-41953842.html Rising yields at the NTMA bond auction show a changed interest rate environment for government bonds

Fry Electronics Team

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