The state is going into the bond markets ahead of the ECB’s rate hike in September

The state returns to bond markets this week ahead of the 2023 Budget after canceling an August debt sale in favor of cash reserve issuance.

The National Treasury Management Agency (NTMA) announced yesterday that it will issue up to €1.25 billion worth of new government bonds in a scheduled auction on Thursday.

The return to markets comes exactly a week ahead of the European Central Bank’s interest rate meeting in Frankfurt, where policymakers are expected to raise borrowing costs by at least half a percentage point.

Traders are increasingly betting interest rates will rise by 0.75 percentage point after hawkish comments from ECB Executive Board member Isabel Schnabel over the weekend suggested the bank was preparing for a more aggressive move.

Thursday’s auction pricing will reflect the market’s view of Ireland’s fiscal position and budgetary leadership in an environment of monetary tightening and economic uncertainty.

The NTMA told institutional investors earlier this month that it would use €6.3 billion of the cash it had accumulated to meet bond repayments and borrowing needs, rather than relying on new debt.

The agency canceled its Aug. 18 auction of Treasury bills, citing the state’s “strong fiscal position, reflected in recent tax returns.”

It was the second such cancellation this year. In June, the NTMA dropped a €1.25 billion bond auction on a shrinking government deficit and robust €27.5 billion in cash on hand.

Thursday’s bond sale will bring the state market funding for up to 70 percent of the lower end of its €10 billion to €14 billion issuance range.

In a presentation to investors, NTMA chief Frank O’Connor said it will likely raise just €10 billion in 2022, or less than half of last year’s total.

Instead, the agency is using its plentiful cash to pay down old debt and meet the government’s shrinking borrowing needs while it prepares an anti-inflationary budget for next year.

Finance Minister Paschal Donohoe announced that a €6.7 billion living expenses package would be included in the next budget.

A strong performance in tax revenues and lower-than-expected spending for Covid-19 already has the government’s need for 7.7bn loans this year.

The Treasury reported a cash surplus of 5 billion euros for the year to the end of July, well above its own forecast of a modest surplus by the end of the year.

Ireland’s long debt maturities and the reduction in its average interest rates have prompted upgrades from three of the four major rating agencies, signaling a positive outlook for the government’s financial profile.

But rising economic uncertainty could test the market’s appetite for Irish bonds, which have traded in line with core countries like France in recent years.

The price of Germany’s 10-year benchmark bond hit a two-month high yesterday as ECB chief economist Philip Lane said the bank would steadily hike rates, suggesting that borrowing costs for all euro-zone governments would rise in the near term. The state is going into the bond markets ahead of the ECB’s rate hike in September

Fry Electronics Team

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