NTMA raises €1.5bn as bond yields creep up again
The National Treasury Management Agency (NTMA) successfully raised €1.5bn in an auction of benchmark Irish government bonds this morning.
The three bonds, maturing in 2031, 2033 and 2050, were all sold with a positive yield, meaning the State will be paying it back with interest.
The NTMA has now raised €12bn of its target of between €16bn and €20bn to fund the Government’s increased spending on Covid-19, which has caused the budget deficit to balloon in the last two years.
The longest dated bond in today’s sale broke the 1pc barrier, indicating that investors believe interest rates will gradually climb above the “zero bound”, where they have been pinned for much of the last year.
As recently as January, institutions were clamouring to buy Irish debt at negative yields, meaning they were willing to lose money to hold the bonds. That month the NTMA held a massively oversubscribed €5.5bn auction of government bonds at a yield of 0.27pc.
The most recent sale of Irish debt maturing in 2050 before today, which was in March, yielded 0.67pc. The average yield since 2015 was 0.764 prior to today’s transactions.
The change in long-term rate expectations in the intervening two months is a sign that the market is expecting positive economic growth, an increase in inflation or both.
While the higher yield means a greater cost of borrowing for the Irish state, a rising yield curve can be read as a sign of growing confidence that the global economy is returning to normal and that fiscal and monetary stimulus is having the desired effect.
However, this week’s sell-off of stocks and bonds in global markets suggests that such success could come at a price.
Yesterday US inflation figures for April came in higher than expected, spooking investors who fear the Federal Reserve may have to increase interest rates sooner than hoped, which could choke off recovery – or at least take the heat out of the stock market.
Ireland’s consumer price index turned positive for the first time this year in April, showing a 1.1pc annual rise in prices, although this was compared to April 2020 at the beginning of the Covid shock. April prices were 0.7pc higher than March, however.