NTMA raises €3.75 billion

Scofflaw

First bond sale since the end of the bailout programme, €3.75bn in 10-year bonds at a yield of 3.54%, multiply over-subscribed at €14bn between 400 subscribers.

The National Treasury Management Agency has raised €3.75 billion through the sale of a new benchmark 10 year bond maturing in March 2024 at a yield of 3.54%.

Investors bid over €14 billion for the new 10-year bond, much more than expected.

The NTMA said its order book included interest from over 400 fund managers, pension funds, insurance companies, banks and other investors, including some from the Middle East and Asia.

"The size of the final order book and the spread of investor interest across the globe demonstrate the appetite for Irish sovereign debt and Ireland's ability to fund its needs in the private debt markets," the agency said in a statement.

It said that, despite the large order book, it had restricted the size of today's deal to €3.75 billion in order to accommodate bond auctions in its funding programme for the remainder of the year.

http://www.rte.ie/news/business/2014/0107/496336-bond-sale/

So the government has been able to return to the markets, the eurozone not only continues to exist but has actually added Latvia, and we haven't all died of plague. Funny old world.

cordially,
Scofflaw

Rightwing

Scofflaw wrote: »

First bond sale since the end of the bailout programme, €3.75bn in 10-year bonds at a yield of 3.54%, multiply over-subscribed at €14bn between 400 subscribers.



http://www.rte.ie/news/business/2014/0107/496336-bond-sale/

So the government has been able to return to the markets, the eurozone not only continues to exist but has actually added Latvia, and we haven't all died of plague. Funny old world.

cordially,
Scofflaw

So austerity wasn't that bad after all. Might be an idea to hold a few more auctions in the near future and avail of the low yield.

Scortho

With the bond sale being so oversubscribed at a low bond yield for a country just out of a bailout, would it not make sense to return to the market very soon and take advantage, in case things go tits up in a few months down the line?
Get all our funding for 2015 out of the way asap?

Cookie_Monster

if it was so oversubscribed why not lower the interest rate until the desired investment is reached rather than just oversubscribed? They probably could have offered it at 2% and gotten the same 3.75bn if it was that popular.

AlmightyCushion

Cookie_Monster wrote: »

if it was so oversubscribed why not lower the interest rate until the desired investment is reached rather than just oversubscribed? They probably could have offered it at 2% and gotten the same 3.75bn if it was that popular.

I think that's what they do. They say they need X billion euro and the various investors bid by saying how much they're willing to lend and at what rate. The NTMA would then accept any bids it wants. It isn't a case of the NTMA saying they want 3.75B at 3.5% and then getting loads of offers at that rate. The over subscription could be made up of bids that the NTMA wouldn't realistically take e.g €1B at 20% or some other crazy high rate. It's possible the NTMA even struggled to get the rate they wanted despite being so over subscribed. At least, that is how I think it works.

Sheldons Brain

we haven't all died of plague.

I have.

Cookie_Monster

AlmightyCushion wrote: »

I think that's what they do. They say they need X billion euro and the various investors bid by saying how much they're willing to lend and at what rate. The NTMA would then accept any bids it wants. It isn't a case of the NTMA saying they want 3.75B at 3.5% and then getting loads of offers at that rate. The over subscription could be made up of bids that the NTMA would realistically take e.g €1B at 20% or some other crazy high rate. It's possible the NTMA even struggled to get the rate they wanted despite being so over subscribed. At least, that is how I think it works.

Fair enough, I remember asking the same before and never getting a decent answer on how it works, the above seems reasonable

hfallada

Hopefully this is which enough to get our credit rating upgraded. One of the rating agencies still won't update our credit rating meaning some funds are prohibited from buying our debt. One or rating is upgraded are cost of borrowing will fall further

murphaph

So will we be investing in some long overdue infrastructure like Metro North or DART Underground now? No, we'll just borrow to pay social welfare and public sector wages and let the country fall further behind in infrastructural terms (a few bypasses excepted).

maninasia

Cookie_Monster wrote: »

Fair enough, I remember asking the same before and never getting a decent answer on how it works, the above seems reasonable

It's a good question, and it would be good to get some clarity on the process.
One would assume that all subscribers put in various bids for different amounts and interest rates, but how does the government issue the bonds, is it at one rate, or a bunch of rates and they average out at 3.25% or whatever.

Scofflaw

maninasia wrote: »

It's a good question, and it would be good to get some clarity on the process.
One would assume that all subscribers put in various bids for different amounts and interest rates, but how does the government issue the bonds, is it at one rate, or a bunch of rates and they average out at 3.25% or whatever.

It seems to be one rate, judging from the detailed issue statement: http://www.ntma.ie/download/government_bonds/Ireland_3_4pc_Treasury_Bond_2024_Offering_Circular.pdf

cordially,
Scofflaw

antoobrien

maninasia wrote: »

It's a good question, and it would be good to get some clarity on the process.
One would assume that all subscribers put in various bids for different amounts and interest rates, but how does the government issue the bonds, is it at one rate, or a bunch of rates and they average out at 3.25% or whatever.

The interest rates themselves are fixed by the NTMA, the yield is what differs. The yield is calculated a few ways but the most basic one is return/cost (most business press are actually referring to Yield to Maturity, but it's complex to calculate). Also remember that bonds are not fixed price, but negotiable instruments (like a cheque or draft, but with different rules).

Using a YTM calculator, the bonds were sold at a 1.2% discount (i.e. the investors paid €98.8 for a €100 bond). When the 10 year bonds were trading at a 14% yield a few years ago, the market price was up to 50% lower than the marked price (the benchmark bonds available at the time were between 4%-6% interest).

Jawgap

Cookie_Monster wrote: »

if it was so oversubscribed why not lower the interest rate until the desired investment is reached rather than just oversubscribed? They probably could have offered it at 2% and gotten the same 3.75bn if it was that popular.

Rightwing wrote: »

So austerity wasn't that bad after all. Might be an idea to hold a few more auctions in the near future and avail of the low yield.

I would say not - purely because with local elections due, and the general election in the next two years, the last thing you'd want is for the politicians to have a seriously large wad of cash available to them.

I'd suggest only raising enough to meet our immediate needs, plus a small bit extra as a contingency.

Cookie_Monster

Jawgap wrote: »

I'd suggest only raising enough to meet our immediate needs, plus a small bit extra as a contingency.

I'm certainly not suggesting raising more, just raising the same at a lower cost.
Frankly borrowing another 3.75bn to simply piss away on uncontrolled & unsustainable levels of current deficit is mental IMO

everdead.ie

I think Moodys are reviewing the investment grade on the 17th and this will probably push us up from Junk to Investment grade which should lower the interest rate again so next bond issue should be better bar some external factors causing caos.

kennyb3

So we got the issue away, with a rate of just above the US 10 year yield yet they are AA rated and we are junk (non investment grade rated). Adds up alright. good for our public finances but a farce.

antoobrien

Cookie_Monster wrote: »

if it was so oversubscribed why not lower the interest rate until the desired investment is reached rather than just oversubscribed? They probably could have offered it at 2% and gotten the same 3.75bn if it was that popular.

This is effectively what they are doing, they didn't expect the demand to be as high or they could have gone lower, but I don't think 2% is realistic.

There was a bond buyback just before Christmas where they bought just over €4bn of the bonds that were due to be paid next week (reducing it from approx €6.8 to about €2.75). The coupon (interest rate) on that bond was 4.0%, the interest rate on yesterdays bond is 3.4%.

Now we obviously can't afford to immediately pay back €6bn of the debt in one chunk, so what this has done is to slightly reduce the total debt, but more importantly reduce the interest payable on the total debt.

There are four bonds on the books with interest rates of 5% or higher. The NTMA should be looking at buybacks for some of these, as well as the 10bn bond due in 2016 (more than is due in 2014 & 2015 combined).

chopper6

murphaph wrote: »

So will we be investing in some long overdue infrastructure like Metro North or DART Underground now? No, we'll just borrow to pay social welfare and public sector wages and let the country fall further behind in infrastructural terms (a few bypasses excepted).

Dont forget overseas aid.

murphaph

chopper6 wrote: »

Dont forget overseas aid.

Yeah those starving feckers in Africa are the problem alright. If Irish welfare rates were nearer to my definition of austere then I might concede that charity should begin at home but in reality we look after our "most vulnerable" too well to be able to point the finger at the overseas aid budget.

ardmacha

murphaph wrote: »

So will we be investing in some long overdue infrastructure like Metro North or DART Underground now? No, we'll just borrow to pay social welfare and public sector wages and let the country fall further behind in infrastructural terms (a few bypasses excepted).

Any responsible individual would pay their health and education bills before extending their house and society does likewise. The increased numbers in third level education will have as favourable an effect on long term development as a Metro and neglecting health in the short term might not be optimal in the longer term (although health is not efficiently managed).

That said, the time is coming when the capital programme should be rebooted and it will be interesting to see if the politicians will say " we will restore investment" or "we will cut your taxes (regardless of the need for investment)". Likewise as employment prospects improve then tapering off benefits as people are on them longer seems a good plan.

murphaph

ardmacha wrote: »

Any responsible individual would pay their health and education bills before extending their house and society does likewise. The increased numbers in third level education will have as favourable an effect on long term development as a Metro and neglecting health in the short term might not be optimal in the longer term (although health is not efficiently managed).

That said, the time is coming when the capital programme should be rebooted and it will be interesting to see if the politicians will say " we will restore investment" or "we will cut your taxes (regardless of the need for investment)". Likewise as employment prospects improve then tapering off benefits as people are on them longer seems a good plan.

You know as well as I do that we don't get good value for money from the health system. Money was flung at it during the boom and it's still sh!t. At least if we flung a bit of money at a metro it would still be there in 100 years and future generations might curse us just a little bit less for saddling them with this generation's debt.

Cookie_Monster

ardmacha wrote: »

Any responsible individual would pay their health and education bills before extending their house and society does likewise.

responsible individuals don't run their households in deficit for years while borrowing to keep it going...

Sheldons Brain

responsible individuals don't run their households in deficit for years while borrowing to keep it going...

Really? Why do we have a mortgage problem then?

Scofflaw

ardmacha wrote: »

Any responsible individual would pay their health and education bills before extending their house and society does likewise. The increased numbers in third level education will have as favourable an effect on long term development as a Metro and neglecting health in the short term might not be optimal in the longer term (although health is not efficiently managed).

The analogy is not really applicable, since extending one's house offers normally no return on investment. Indeed, you effectively acknowledge that they're not really the same by going on to compare ROI's directly.

cordially,
Scofflaw

maninasia

Borrowing at lower rates to pay back higher interest rate debt makes a lot of sense. So there's something to celebrate there.
But not if the big wodge of this borrowed cash is used just to finance current spending.

Cookie_Monster

Sheldons Brain wrote: »

Really? Why do we have a mortgage problem then?

because not everyone is responsible?

maninasia

It's not necessarily about responsibility. If the mortgage isn't being paid where does the reason come into it?


It's up to the banks (and therefore the government) to deal with foreclosures on mortgages that are not being paid. It's not a personal thing.

It's the banks and the government that should be responsible for getting their loans paid back.

woodyg

this low interest rate bond issue is very good news.
the rate on the bond is around the same as what we got back in 2006 i believe
http://www.bloomberg.com/news/2013-04-11/german-government-bonds-little-changed-before-italian-debt-sales.html

this alone shows investor confidence in bond purchase.
when Moody's does the upgrade on Jan 17th i expect the NTMA to do another bond sale around the middle\end of February

these bond sales are very good as they are putting cash buffers in place for next years funding and also allowing to do some buy backs of bonds that have much higher interest rates and earlier maturity
this reduces the interest being paid yearly and the due dates for the large sums

ardmacha

antoobrien wrote:

There are four bonds on the books with interest rates of 5% or higher. The NTMA should be looking at buybacks for some of these, as well as the 10bn bond due in 2016 (more than is due in 2014 & 2015 combined).

Would buying back above par bonds with new bonds with a larger number of lower coupon bonds not increase the debt/GDP ratio? Long term costs would remain similar, but the old bonds would have higher annual payments of interest and lower redemption cost.

Scofflaw wrote: »

The analogy is not really applicable, since extending one's house offers normally no return on investment. Indeed, you effectively acknowledge that they're not really the same by going on to compare ROI's directly.

cordially,
Scofflaw

It could be said to increase the value of your house. Sure, weren't we told for years that was an "investment"

chopper6

murphaph wrote: »

You know as well as I do that we don't get good value for money from the health system. Money was flung at it during the boom and it's still sh!t. At least if we flung a bit of money at a metro it would still be there in 100 years and future generations might curse us just a little bit less for saddling them with this generation's debt.

Suuure...we could have a metro going nowhere or serving horrible slums.

Good idea.

murphaph

chopper6 wrote: »

Suuure...we could have a metro going nowhere or serving horrible slums.

Good idea.

I honestly have no idea what you're talking about.

carpejugulum

murphaph wrote: »

So will we be investing in some long overdue infrastructure like Metro North or DART Underground now? No, we'll just borrow to pay social welfare and public sector wages and let the country fall further behind in infrastructural terms (a few bypasses excepted).

With half the country on welfare, you can't expect much else.

antoobrien

ardmacha wrote: »

Would buying back above par bonds with new bonds with a larger number of lower coupon bonds not increase the debt/GDP ratio? Long term costs would remain similar, but the old bonds would have higher annual payments of interest and lower redemption cost.

Simple answer no.

More complete answer, selling bonds increases debt, buying them back or redeeming them decreases the ratio. If you have to sell bonds to generate the money to buy them back, then it would temporarily raise the ratio, which would drop as soon as we'd buy back the targeted ones or redeem the ones due.

However the NTMA have approx 20bn in cash, which is getting very little, if any, interest on deposit. So we don't necessarily have to send bonds in order to buy back others.

ardmacha wrote: »

Long term costs would remain similar, but the old bonds would have higher annual payments of interest and lower redemption cost.

Bonds are usually redeemed in full (the exception is the amortising bonds that are paid back according to a schedule), so the redemption costs are the full price of the bond & the interest outstanding.

A rough calculation of the interest costs for the Treasury bonds shows that the NTMA currently have about 89.5bn in bonds (amortising & government) with an interest cost of about 4.2bn. The 5 bonds I referred to cover 44bn in debt with annual interest repayments of 2.3bn. If we could replace those bonds with 3.4% bonds, we'd save 800m each year in interest payments.

gaius c

Our national debt has rocketed from 25% of GDP to 125% of GDP and people are saying 'Yayyy we can borrow at 3.5% because daddy's got our back'.
It's 7 years since our finances deteriorated and we're still borrowing.
This is not something to celebrate.

BKtje

Ireland has always borrowed and I imagine always will. The fact that the borrowing costs have decreased is a good thing and not something to really complain about. What the money is spent on though is something that needs to be closely watched.

BKtje

Ireland has always borrowed and I imagine always will. The fact that the borrowing costs have decreased is a good thing and not something to really complain about. What the money is spent on though is something that needs to be closely watched.

ardmacha

antoobrien wrote: »

Simple answer no.

More complete answer, selling bonds increases debt, buying them back or redeeming them decreases the ratio. If you have to sell bonds to generate the money to buy them back, then it would temporarily raise the ratio, which would drop as soon as we'd buy back the targeted ones or redeem the ones due.

However the NTMA have approx 20bn in cash, which is getting very little, if any, interest on deposit. So we don't necessarily have to send bonds in order to buy back others.



Bonds are usually redeemed in full (the exception is the amortising bonds that are paid back according to a schedule), so the redemption costs are the full price of the bond & the interest outstanding.

A rough calculation of the interest costs for the Treasury bonds shows that the NTMA currently have about 89.5bn in bonds (amortising & government) with an interest cost of about 4.2bn. The 5 bonds I referred to cover 44bn in debt with annual interest repayments of 2.3bn. If we could replace those bonds with 3.4% bonds, we'd save 800m each year in interest payments.

Perhaps I haven't been clear here, the difference lies in the nominal price of the bonds and their market price.

Say you had a €1m 5% bond, this might trade at 120% of its value (numbers only a guess)
interest payments €50,000
redemption €1m

you buy this back by issuing €1.2m of bonds at 3.35%
interest payments €40,000
redemption €1.2m

your nominal debt and so debt/gdp ratio has gone up with more debt to turnover in due course, but your annual interest cost may have declined.

antoobrien

ardmacha wrote: »

Perhaps I haven't been clear here, the difference lies in the nominal price of the bonds and their market price.

I clear it up then, the nominal price (the price that will be repaid) is the price recorded in the national debt. A buyback/redemption removes the nominal price from the debt - regardless of the market price.

ardmacha wrote: »

Say you had a €1m 5% bond, this might trade at 120% of its value (numbers only a guess)
interest payments €50,000
redemption €1m

you buy this back by issuing €1.2m of bonds at 3.35%
interest payments €40,000
redemption €1.2m

your nominal debt and so debt/gdp ratio has gone up with more debt to turnover in due course, but your annual interest cost may have declined.

The only way that such a transaction would go ahead is if the savings made by paying a lower interest rate is greater than the the premium being paid. So to take the example further, if this was a 30 year bond with 25 years remaining there'd be a potential saving of 250,000 over the remaining lifetime of the bond. Possible, but probably not worth it.

Also it'd be unusual for buybacks to happen at the market price. It's usually some premium that will include a partial payoff for loss of interest payments. Don't forget that investors are often happy to take this as it can mean that they will record a profit (depending on when they bought, especially if they have bought at a lower price) and opening up other opportunities.

ardmacha

antoobrien wrote: »

The only way that such a transaction would go ahead is if the savings made by paying a lower interest rate is greater than the the premium being paid. So to take the example further, if this was a 30 year bond with 25 years remaining there'd be a potential saving of 250,000 over the remaining lifetime of the bond. Possible, but probably not worth it.

Also it'd be unusual for buybacks to happen at the market price. It's usually some premium that will include a partial payoff for loss of interest payments. Don't forget that investors are often happy to take this as it can mean that they will record a profit (depending on when they bought, especially if they have bought at a lower price) and opening up other opportunities.

In a half efficient market it seems to me that there isn't much advantage buying back the 5% bonds, other than something like the early redemption a to move it into a different year.

antoobrien

ardmacha wrote: »

In a half efficient market it seems to me that there isn't much advantage buying back the 5% bonds, other than something like the early redemption a to move it into a different year.

That all depends on the relative prices and the willingness of bondholders to sell. To take a concrete example, the 5.9% bond due in October 2019 is currently trading at about 19% above the nominal price, but the outstanding interest (6 payments) is 35.4% of the price of the bond.

There'd be two good reasons for a buyback of this bond (even at the current market cost) - the potential to remove 2%-2.5% from the interest repayments and the prospect of moving the redemption date of the bond as there's 14.5bn due in 2019.

The bond redemption schedule is tricky over the next 10 years, with a lot of big bonds due that will have to be partially bought back in order to make the financing of them easier.
Date | €m | %
15/01/14 | €2,746.15 | 4.00%
18/02/15 | €3,629.92 | 4.50%
18/08/15 | €7.39 | 8.25%
18/04/16 | €10,168.45 | 4.60%
18/10/17 | €6,389.18 | 5.50%
18/10/18 | €9,255.58 | 4.50%
18/06/19 | €7,700.06 | 4.40%
18/10/19 | €6,766.58 | 5.90%
18/04/20 | €11,808.77 | 4.50%
18/10/20 | €9,051.99 | 5.00%
20/03/23 | €5,000.00 | 3.90%
18/03/24 | €3,750.00 | 3.40%
13/03/25 | €11,745.35 | 5.40%

antoobrien

The NTMA have today bought back (cancelling) €1,077.5m of the 4.6% bond due to be repaid in 2016 (reducing the interest to be paid on the bond by approx €87m*, 37.5m due as interest next year, and 49.5m due to be paid in 2016).

A further €959m of the bond has been swapped for the 3.9% bond due in 2023 in a 2:1 swap, reducing the interest payments for the next two years by a further 46m(€33.35m saved in 2015, €44.1m in 2016 on the 2016 bond, with €12.7m extra due on the 2023 bond in 2015 and €18.7m in 2016).

There have also been two buybacks (in April & May) of the 2015 bond, reducing the total to be repaid next year by €1.4bn, saving approx €50m in interest repayments.

As interest was paid on these bonds before the swap/buybacks, the savings on interest (approx €108m) will be seen in next year's budget.

*Interest calculations based on the number of days from maturity/interest payment date to settlement date e.g. 89 days in the case of the 2016 bond.

bonerjams03

Forgive the ignorance; what effect will this have on, well, anything?

antoobrien

IRcolm wrote: »

Forgive the ignorance; what effect will this have on, well, anything?

One kindly suggests that the post should be read again as there there are several things that it affects, which are spelt out in detail.

AlmightyCushion

IRcolm wrote: »

Forgive the ignorance; what effect will this have on, well, anything?

Our national debt stays the same but the interest costs of it are reduced a bit. This means we'll have to borrow less next year just to balance the books.

antoobrien

AlmightyCushion wrote: »

Our national debt stays the same but the interest costs of it are reduced a bit. This means we'll have to borrow less next year just to balance the books.

Actually the transaction removes approx €1.5bn from the debt at the start of business.

However if one digs through the announcements for the year, we should find that the debt hasn't changed much since January, but the interest payments are lower because we've been cancelling higher coupon (interest) bonds and replacing them with lower coupon bonds.

Godge

antoobrien wrote: »

Actually the transaction removes approx €1.5bn from the debt at the start of business.

However if one digs through the announcements for the year, we should find that the debt hasn't changed much since January, but the interest payments are lower because we've been cancelling higher coupon (interest) bonds and replacing them with lower coupon bonds.

Also, remember that some of the doommongerers on here were pointing to the amount of bonds that need to be refinanced over the coming years. By refinancing these earlier with longer maturities at a time when there is demand for Irish bonds, we reduce the risks in future years.

bonerjams03

antoobrien wrote: »

One kindly suggests that the post should be read again as there there are several things that it affects, which are spelt out in detail.

I appreciate that, and was just asking a question regarding the long run, or was it just the order of payments reducing the interest on that batch of payments.

antoobrien wrote: »

Actually the transaction removes approx €1.5bn from the debt at the start of business.

However if one digs through the announcements for the year, we should find that the debt hasn't changed much since January, but the interest payments are lower because we've been cancelling higher coupon (interest) bonds and replacing them with lower coupon bonds.

Here you had an answer, and I now know more than I did coming into this thread.

antoobrien

IRcolm wrote: »

I appreciate that, and was just asking a question regarding the long run, or was it just the order of payments reducing the interest on that batch of payments.

Ask and it shall be answered, your original question was a bit more general and I didn't pick that up from it (sounded more like €100m big deal).

To expand on the point you raised, the interest is reduced on the two remaining payments for the 2016 bond, while the payments on the other bond will rise for the duration of that bond.

In the short term we're "better off" by the amounts that I mentioned in the post, so that is a good thing. However it should be noted that there is still over 8bn due in 2016 that will have to be refinanced. Going by the approach the NTMA has taken to the 2015 & 2016 bonds there will be gentle buybacks to reduce the overall amount outstanding, as well as other swaps that will delay the payment date of that debt.

IRcolm wrote: »

Here you had an answer, and I now know more than I did coming into this thread.

Good to know it's being helpful.

realitykeeper

Scofflaw wrote: »

First bond sale since the end of the bailout programme, €3.75bn in 10-year bonds at a yield of 3.54%, multiply over-subscribed at €14bn between 400 subscribers.



http://www.rte.ie/news/business/2014/0107/496336-bond-sale/

So the government has been able to return to the markets, the eurozone not only continues to exist but has actually added Latvia, and we haven't all died of plague. Funny old world.

cordially,
Scofflaw

The Bank of International Settlements has said recently that the situation in the Financial markets is "worse than before the collapse of Lehman Brothers." So no wonder there is such a demand for government bonds. It is a flight to safety. If the stock markets collapse, governments will either have to default on paying their bond holders or start a new round of QE on steroids. The bond investors are gambling on the latter. The future has never looked more bleak.