NTMA sell 3month treasury bills at 1.8%

The Government has raised €500 million in a debt auction today, in its first sale of Treasury bills since before the State sought a bailout.

The auction met its target, and had a yield of 1.8 per cent and a bid to cover ratio of 2.8.

Analysts described the auction results as "positive", and Minister for Finance Michael Noonan said it was an important step for the eocnomy.

"This morning’s successful auction of three-months treasury bills by the NTMA was a very important milestone on Ireland’s continuing path to recovery," he said. "The yield on the bonds at 1.80 per cent was very competitive to its peer Group, market commentators were agreed that any level lower than 2 per cent would be considered a good result, and demand was strong amongst investors."

The return to financial markets was conducted by the National Treasury Management Agency, the State body tasked with managing the national debt.

On Tuesday, the agency announced it would seek to tap financial markets by issuing IOUs known as treasury bills. The bills will have to be repaid in just three months.

Irish Treasury bills were last auctioned in September 2010, a short time before the State had to seek an EU-IMF bailout as borrowing costs had risen to unsustainable levels.

"The resumption of Treasury bill auctions follows an intensive engagement with investors both domestically and overseas during the past 18 months and marks an important first step in our phased re-entry to the capital markets," NTMA chief executive John Corrigan said.

The NTMA plans to increase gradually the amounts it raises at each successive auction over the remainder of the year and into 2013. The repayment duration of the IOUs it issues will also be lengthened.

Typically bonds of five- and 10-year maturity account for most government debt in developed countries, with short-term treasury bills accounting for a much smaller share.

The success of the Government’s plan to wean itself off bailout funding will depend to a considerable degree on the performance of the public finances this year and next.

New figures from the Department of Finance, published earlier this week showed the fiscal position is on track to meet targets set out in last December’s budget and under the terms of Ireland’s EU-IMF bailout.

The exchequer returns showed the deficit between public spending and revenues narrowed in the first half of the year, falling from €10.8 billion in January-June 2011 to €9.4 billion in the same period this year.

Tuesday’s figures showed tax revenue increased by more than 5 per cent in June compared with the same month last year.

Total tax revenue for the first six months of the year was up by more than 11 per cent on the same period in 2011 and 3 per cent ahead of budget-day targets.

By contrast, public spending exceeded the targets set out late last year, with the two largest spending departments (health and social welfare) accounting for the overshoots.