Ireland is issuing a 15-year bond for the first time since 2009 to help raise money to pay off costly International Monetary Fund (IMF) loans.
The National Treasure Management Agency (NTMA), the State body responsible for managing the country’s assets and liabilities is expected to raise €4 billion through the sale of the bond.
While the NTMA has not commented on how the proceeds of the bond deal will be used, it is believed that the money will go towards paying off part of the debt owed to the IMF, as previously indicated by Finance Minister Michael Noonan.
The deal is likely to be finalised by the end of the week, with full details being announced later this afternoon.
Why are they doing this?
Issuing long-term bonds allows Ireland to access funds on the private money market. The Government is currently paying just under five percent interest on its IMF loans. It is expected that the yields, or effective rate of interest on these new loans will be somewhere around, or below, two and a half per cent, half the IMF rate.
Last year, interest on loan repayments cost Ireland €8 billion which is why a reduction to this bill has been a priority for the Government. Cutting the IMF debt is expected to save the Exchequer between €1.5 and €2 billion.
How will the market react?
The decision to issue 15-year bonds reflects positive investor sentiment towards Ireland. Markets are tight and rates are low so it is expected that this will be a very popular offering.
IMF legacy
It is believed that the Government has €2 billion set aside to add to the money raised on the bond market, and that they hope to pay back the IMF in three €6 billion payments over the next three years.
Anything else we should know?
Today’s bond offering has been anticipated for the Fourth-Quarter. Ireland had to reach an agreement with other European countries to allow the country to prioritise repaying the IMF debt before paying back loans owed to Europe.
The NTMA released a statement yesterday saying that it had appointed Citi, Dankse Bank, Morgan Stanley, Nomura and Royal Bank of Scotland to manage the sale of the bonds.
Today’s news is positive but Ireland still has a long way to go. Ireland’s general government debt has increased by some €160 billion since the initial onset of the economic downturn in 2006. However, €64 billion of that money was used to save the collapsing banking sector.
While the Irish economy is showing green shoots, and experiencing better than expected growth figures, the country still has a long way to go to before it can leave the recession behind.
