Ireland will sell bills this week in the first public debt auction since the nation sought a bailout in 2010, betting on a return of investors amid signs the economy is recovering from a banking crisis.
The National Treasury Management Agency will sell 500 million euros ($630 million) of treasury bills in two days, the Dublin-based debt office said today in a statement on its website. The securities mature on Oct. 15 and mark the first sale in a “phased re-entry” to markets, Chief Executive Officer John Corrigan said.
With the economy stabilizing after shrinking about 15 percent since 2007, the NTMA said last month a bill sale in the “summer months” would pave the way for a full return to bond markets by year-end or early 2013. Ireland was frozen out of auctioning debt in 2010 because of concern the country’s banks would overwhelm sovereign finances. The government was forced to seek an international bailout in November that year.
“It’s positive news, Ireland has done relatively well in its reform program,” said Lyn Graham-Taylor, a fixed-income strategist at Rabobank International in London. “The market is saying that perhaps Ireland is on its way out of the bailout program.”
Irish yields have declined after European leaders agreed at a summit in Brussels on June 29 that bailout funds will be able to directly recapitalize banks. Ireland’s government wants this policy to apply retrospectively to its lenders after pledging about 64 billion euros to save its financial system, equivalent to about 40 percent of gross domestic product.
Ireland’s bailout partners, the International Monetary Fund, European Central Bank and European Union begin their seventh review of the country’s bailout program today. The assessment will last almost two weeks, Paul Bolger, a Finance Ministry spokesman, said on June 25.
The 5 percent security due in October 2020 rose for the fifth straight day, with the yield falling 11 basis points to 6.23 percent at 1:31 p.m. London time, the lowest since October 2010. The rate was at 7.11 percent on June 28, and exceeded 14 percent about a year ago.
Credit-default swaps on Ireland have tumbled near to the level when the government last came to market. Five-year contracts fell 24 basis points today to 503, the lowest since November 2010 and near to the 460 basis point level on Sept. 23, 2010, when Ireland last sold bills. The swaps are down from a peak of 1,181 basis points last year and 726 on May 31.
The bills may be priced at a rate of less than 2 percent, said Andy McEntee, head of money markets at Davy, a primary dealer in Irish government debt. Unlike Ireland, Greece and Portugal have kept selling bills since they received bailouts.
“Ireland issuing T-bills is by no means the big deal that some are making it out to be,” said Megan Greene, a senior economist at Roubini Global Economics LLC in London. “It reflects an improvement in investor confidence off the back of last week’s EU summit.” Once details of the agreement emerge, “everyone will be disappointed,” Greene said.
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