The National Treasury Management Agency (NTMA) has ended bond market fundraising for the year by selling 10-year notes at the highest interest rate since just after the Republic exited its international bailout programme.
The State’s debt-management agency sold €1.25 billion of bonds in an auction on Thursday morning, with the notes priced to carry a market interest rate – or yield – of just over 3.5 per cent.
It was the highest rate the market demanded for new 10-year Irish Government bonds since January 2014, a month after the State exited a three-year international bailout programme.
However, it was not the highest rate the NTMA has paid to raise long-term funding in the post-bailout era. In July, it issued 30-year bonds at a yield of 3.82 per cent, the highest rate for such debt since March 2013.
The auction brings the total value of benchmark bonds issued by the NTMA this year to €12.3 billion, which is above the midpoint of a targeted range between €10 billion and €14 billion set out last December. The agency is led by chief executive Frank O’Connor.
Bond yields have jumped globally this year, mainly as investors bet on the extent to which central banks will increase official interest rates to rein in inflation that has been stoked by the effect of the Iran war on fuel prices.
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Still, euro-zone rates have generally come back in from their highs in recent weeks as investors concluded money markets may have got carried away when they were pricing in four more rate hikes by the European Central Bank (ECB) over 12 months. The ECB has already pushed through two quarter-of-a-percentage-point rate increases since the middle of June.
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Other dynamics have also been at play in the European debt markets in recent times. Investors have been increasingly demanding higher rates for French and Italian debt, relative to Germany, the main euro-zone benchmark, amid concerns about their high, and rising, debt levels.
The yield on 10-year French bonds reached 4.9 per cent earlier this week, amid market concerns about political instability hampering efforts to bring the country’s budget deficit under control. France is heading into a presidential election next spring.
The difference – or spread – between the yields on 10-year French and German bonds high 1.59 percentage points earlier this month, the widest since November 2011, at the height of the euro-zone sovereign-debt crisis.
Italy’s €3-trillion government bond market, one of the world’s biggest, has come under renewed scrutiny amid contagion from a sharp sell-off in French debt. Bond yields move inversely to bond prices.
Italian 10-year bond rates hit 4.7 per cent this month and the yield gap with safe-haven German bunds reached its widest in almost 18 months.
Italy’s national election next year throws doubt on Rome’s plans to reverse the rise in its huge public debt, according to analysts. – Additional reporting: Bloomberg