In May the National Treasury Management Agency (NTMA) launched a new benchmark bond by syndication (where a group of banks or financial institutions act as marketer or dealer of the bond), which matures on 15th May 2050. In the case of this new 30-year bond syndication by the Irish state, Cantor Fitzgerald Ireland was a lead manager or joint book-runner along with Barclays, BNP Paribas, Danske Bank, Deustche Bank and Goldman Sachs International Bank.
The deal was met with strong demand as investors decided to concentrate on Ireland’s strong macroeconomic fundamentals (such as strong GDP growth, low unemployment rate and strong export levels) and not focus on external risks such as Brexit and the escalating trade wars. The order book exceeded €17 billion for the €4 billion issue meaning that many investors experienced significant scale back in their orders. Overseas investors took up about 98% of the final allocation. These included the UK (25%), Germany (21%), other European (14%), Nordic countries (11%), Italy (10%) and France (8%), with the balance spread across other regions. The main investor categories were asset managers (40%), banks (31%) and pension & insurance companies (21%), with the balance spread across hedge funds, official institutions and others. Our Debt Capital Markets team contributed c.€7 billion worth of orders, from almost 100 different clients across 19 countries.
The bond has a 1.5% coupon and was priced at 99.31 to give a re-offer yield of 1.528%. The Government decided to raise €4 billion at this historically low funding level, in what was a very good deal for the Irish tax payer, helping to minimise future State interest payments. Following this transaction, Ireland has completed €9.25 billion in nominal bond issuance out of the stated annual funding target of €14-€18 billion. The NTMA is scheduled to conduct a regular bond auction in June.
So How Much Is The Bond Market Worth & What Does This Mean for Ireland?
Today’s global bond market is valued at in excess of $100 trillion. This bond sale is a positive sign for the Irish economy, with the crème de la crème of global institutional investors fighting each other to lend us money for 30 years at an interest rate of only 1.5%. The guarantee is coming from what is a relatively small country where bond yields only a few years ago were in excess of 10%, and where there is no capital guarantee if you sell before maturity.
So why such interest/demand? In European bond terms, Ireland is deemed to be a semi-core country with similar risk/return metrics to France and Belgium. Semi-core countries offer a greater return than core bond yields such as those received in Germany, Holland and Austria. It is anticipated that some of the debt raised will be used to finance the repayment of bonds that are due to mature in the coming years.
The debt sale took advantage of the rally in European bonds so far this year as weak economic data in countries such as Germany and particularly Italy has fuelled speculation that the European Central Bank will have to keep its main rate at zero for the foreseeable future.
To speak with a Portfolio Manager or Account Executive, please phone the Cantor Fitzgerald dealing desk on 01 633 3633.