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Investors take €1.25bn of government debt in bond sale

Investors snapped up the sale of €1.25bn of government debt yesterday underscoring the robust demand for Irish bonds amid growing unease over the French presidential elections and receding hopes of any imminent change to the European Central Bank’s monetary policy.

Yields for nine-year paper sank below the rate achieved for similarly dated debt in last month’s bond sale.

The National Treasury Management Agency (NTMA) issued €700m of debt, maturing in 2026, at a yield of .93pc.

In March, sovereign paper maturing in the same year attracted a yield of 1.04pc .

The NTMA also sold €550m worth of six-year bonds in yesterday’s auction, which achieved a yield of just 0.2pc.

Cantor Fitzgerald’s head of fixed-income strategy, Ryan McGrath, described bond yields as “range bound” amid uncertainty about the timing of any curtailment to the ECB’s quantative easing strategy. He added that Irish debt was now viewed as “semi-core” but predicted further volatility as the French presidential election nears.

He pointed out that government bonds remain 75 basis points wider than the benchmark German bund, a global safe-haven asset.

On Tuesday, a new government website offered a reminder of the State’s relatively high debt burden with debt-servicing obligations accounting for over 15pc of this year’s €68.7bn annual expenditure. The NTMA has now issued €7.75bn worth of bonds, taking it within touching distance of the lower end of its €9bn-€13bn target issuance range. NTMA CEO Conor O’Kelly warned against accumulating more debt simply to take advantage of the prevailing low interest rate environment.

But he also argued markets are braced for a “normalisation” or elimination of the expansionary measures that have sent yields to rock-bottom levels.

He said that will have an impact in the medium term and will make it “more difficult” to reduce the annual outlay on the nation’s debt pile. “We cannot predict what will happen but our working assumption is that rates could go higher when quantitative easing stops and that encourages us to pre-fund now as much as possible to take advantage of the low-rate environment,” he told an Oireachtas Committee hearing in March.

The NTMA has said it will hold another bond auction in June.
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