The National Treasury Management Agency (NTMA) last week raised €3.5 billion through the syndicated sale of a new 20-year benchmark Treasury Bond maturing in April 2041, with Cantor Fitzgerald Ireland along with Barclays, BNP Paribas, Danske Bank, J.P. Morgan and Nomura acting as joint lead managers.
The funds were raised at a yield of 0.585% with strong demand from a diversified investor base. International investors accounted for 94% of the allocated bonds. The largest distribution went to Germany/Austria/Switzerland at 25%, followed by the Nordics at 21% and the UK at 15%. Italy accounted for 8%, France 7%, Ireland 6% and other European countries together accounted for 12%. The Americas and rest of the World took 7%. The main investor categories were banks 31%, followed by fund managers 29%, pension & insurance 18%, hedge funds 13%, and official institutions 7%. Four months into 2021, the NTMA has raised €10.5 billion or close to 60% of the mid-point of the target funding range of €16 – €20 billion for 2021. Two further regular bond auctions are planned during quarter 2, on Thursday May 13th and Thursday June 10th. The NTMA also raised €750 million of Irish Treasury Bills maturing in October 2021.
The NTMA said that the current low interest rate environment has created opportunities to lock in the benefits of low rates for the longer term and gives greater certainty over future debt servicing costs, adding that 20-year transaction reaffirms its approach to issue longer dated bonds when demand allowed.
Finance Minister Pascal Donohoe recently published Ireland’s Stability Programme Update, outlining the Government’s new fiscal and economic projections. The forecasts are dependent on a successful vaccination programme and the gradual lifting of pandemic restrictions. Revisions from the October budget make for positive reading, highlighting the effectiveness of Ireland’s fiscal response so far in managing the pandemic.
- GDP growth for 2021 has been revised higher to 4.5% (up from a previous 1.7%). GDP is expected to be 5% in 2022.
- The department is expecting a significant rebound in the domestic economy driven mainly by the release of accumulated savings post the pandemic. As the pent-up demand eases, Modified Domestic Demand (MDD), a more useful indicator of domestic economic conditions, is projected to grow by 2.5% this year and 7.5% next year.
- After recording a General Government Deficit of 5% of GDP last year, a further deficit of 4.7% of GDP is in prospect for this year (revised lower from the 5.7% estimation in October’s budget).
- Ireland is projecting considerable improvement in the public finances in 2022. A General Government Deficit of only 2.8% of GDP is forecast for 2022, falling to 1.2% in 2023.
- The level of General Government Debt (as a percentage of GDP) is now only expected to be 60.2% in 2021, down from a previous assumption of 66.6%. The ratio is to fall to 59% in 2022. This means that during the crisis Ireland’s debt ratio will have peaked at just 62.2% in 2021. The Department of Finance prefers to use, Debt as a percentage of GNI* (Modified Gross National Income) as a more realistic representation of Ireland’s debt situation. Debt-to-GNI* ratio is projected to rise to 112% this year (previously estimated at 114.7%) but is set to decline to 107% in 2022.
- Exchequer Borrowing Requirement for 2021 is to drop only marginally to €16.9 billion from a previously estimated €17.6 billion in October’s budget.
- The slight change to the EBR should harden confidence behind the NTMA’s stated funding range of €16-20 billion for 2021. Ireland is likely to reach the half year point with over €13 billion of funding completed, leaving the NTMA in a really strong position for the remainder of the year.
- The labour market has borne the brunt of the pandemic with the unemployment rate projected to average 16.25% this year and 8.25% next year.
- There are downside risks to the public finances from international tax reform, the Department is suggesting a decrease of €500 million a year in corporation tax revenue between 2022 and 2025.
Ryan McGrath is Head of Fixed Income Strategy and Sales at Cantor Fitzgerald Ireland.
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