The State’s debt agency plans to raise up to €3 billion as soon as Wednesday by selling its first ever 20-year bond through a group of banks and securities firms.
The National Treasury Management Agency said on Tuesday afternoon it had hired a syndicate of banks, comprising Barclays, Cantor Fitzgerald, Danske Bank, HSBC, JP Morgan and Morgan Stanley, to manage the bond sale.
Market sources said the deal is aimed at raising between €2 billion and €3 billion. A spokesman for the NTMA declined to comment on the size of or timing of the deal.
Ireland’s benchmark 10-year bonds fell in early trading on Tuesday, sending the market interest rate, or yield, on the notes higher, as speculation mounted that the Government would stick to its form in recent years of being among the first euro-zone states to sell debt in January.
Yields
Government or corporate bond yields often rise if the market anticipates that the issuer is planning to sell fresh debt. Sometimes investors decide to sell some of the issuer’s existing debt to free up funds to buy the new bond.
Yields globally also pushed higher on Tuesday as data showed that inflation was picking up across Germany, amid rising oil and other commodity prices, and as investors digested an announcement from France that it had hired banks to sell bonds that will mature between 15 and 25 years from now.
The yield on the 10-year Irish notes jumped as much as 0.19 percentage points to 0.938 per cent.
Analysts were broadly divided ahead of the NTMA’s statement about whether the debt agency would sell a 10-year or 20-year bond. The agency plans to sell between €9 billion and €13 billion of debt this year. It must redeem €6.3 billion of bonds that are due in October.
All told, governments of the world’s leading economies have about $7.7 trillion (€7.4 billion) of debt maturing this year, with most facing higher borrowing costs as a three-decade bull market for bonds shows signs of running out of steam, according to Bloomberg.
Bearish
The amount of sovereign bills, notes and bonds coming due for the Group-of-Seven nations plus Brazil, Russia, India and China will climb more than 8 per cent from approximately $7 trillion in 2016.
The first substantial increase since Bloomberg started collating the data in 2012 is led by China, where $588 billion of expected redemptions represents a 132 per cent jump from 2016.
Money managers from Pioneer Investment Management to Old Mutual Global Investors have said they are either bearish or less positive on government bonds as they expect US-led reflation and fiscal expansion to gradually replace monetary policy as a growth driver and push up yields further.
“We do expect higher bond issuance in 2017 as a result of either direct fiscal stimulus or budget deficit slippage,” said Cosimo Marasciulo, Dublin-based head of government bonds at Pioneer.
“This increased bond supply will be a headwind for investors already facing a boost to economic activity and inflation from this increased fiscal spending. Bond valuations are already looking unattractive from a fundamental viewpoint. We think there are dark clouds on the fixed-income horizon.”
The yield on US 10-year bonds has jumped to 2.5 per cent from a low of 1.36 per cent in the middle of last year. Germany’s 10-year bonds have swung from a negative yield of 0.189 per cent to 0.278, while similar Irish securities have jumped from a record low of 0.32 per cent.
Still, the current rate on Ireland’s benchmark bonds, is well off the 14.2 per cent high set in July 2011, at the height of the financial crisis.
