The National Treasury Management Agency (NTMA) has cancelled a scheduled bond auction next week and will proceed with a larger, multibillion-euro deal managed by a group of investment banks and brokerages to try to get ahead of expected official interest rate hikes as the Middle East crisis stokes inflation.
The agency, which manages the State’s debt and funding requirements, said in a statement on Friday that the so-called syndicated tap transaction – meaning new notes will be issued from an existing NTMA bond, rather than a new one – will take place “in the coming weeks, subject to market conditions”.
A spokesman for the NTMA, which is led by chief executive Frank O’Connor, declined to comment on the exact timing or planned size of the deal. Its syndicated deals have typically ranged between €3 billion and €5 billion in recent years, a multiple of the €1.25 billion to €1.5 billion it usually raises in more straightforward bond auctions.
The market interest rate – or yield – on Ireland’s benchmark 10-year bonds has jumped from 2.86 per cent to 3.23 per cent since the US and Israel attacked Iran in late February, setting off a geopolitical crisis that has see energy prices soar.
Fuel prices have driven a spike in headline euro zone inflation to 3 per cent in April from 1.9 per cent in February, according to Eurostat, the EU’s statistics agency.
While the European Central Bank (ECB) left interest rates unchanged at a meeting last week, it hinted that a rate increase could come as soon as June. Financial markets are currently pricing in three or, more likely, four ECB rate hikes over the next 12 months, which would lift the ECB’s key deposit rate to 3 per cent.
“I think markets are priced too much towards interest rate hikes and not enough towards central banks trying to hold through this and then cut in [the fourth quarter]” said Kallum Pickering, chief economist and deputy head of research at Peel Hunt.
“There’s much too much muscle memory from 2022 when the Russian invasion of Ukraine caused the gas price to go up,” Pickering said, adding that the main risk is to output and employment.
The NTMA has so far raised €6.25 billion in the long-term bond markets this year. It has previously stated that it plans to issue between €10 billion and €14 billion of bonds. That compares €8.25 billion raised in 2025.
The higher target reflected the fact that the NTMA entered this year facing €15 billion in debt maturities that needed to be refinanced.
The planned syndicated bond deal will be the first since the S&P Global, one of the world’s largest credit ratings agencies, upgraded its view of Ireland’s creditworthiness in March by AA+, leaving it within one level of its top-notch AAA grade for the first time since early 2009.
S&P now has the highest rating on Ireland of any of the leading credit agencies. The world’s leading credit ratings firms stripped Ireland of its prized top credit ratings during the financial crisis, with S&P rival, Moody’s, going so far as to downgrade the Republic’s creditworthiness to “junk” status in 2011.
S&P rated Ireland at as low as BBB+, seven levels below AAA, but three steps above “junk”, during the worst of the downturn. – Additional reporting, Reuters