Home In The News Ireland Makes $4.6 Billion Return To International Bond Market

Ireland Makes $4.6 Billion Return To International Bond Market

By: EW News Desk Team Date: 26 January 2012

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26 January 2012

The Irish government swapped more than 3.5 billion euros ($4.6 billion) worth of government bonds on Wednesday, as the country took advantage of growing investor confidence to reduce the nation’s short-term debt obligations.

Almost a third of investors in an 11.8 billion euro ($15.2 billion) treasury bond – offering a yield of 4.9 percent with a maturity date in January 2014 – agreed to swap their holdings to a new government bond that offered a 5.15 percent yield due in February 2015; ensuring that at least 30 percent of Ireland’s early debt would be pushed back till a year later.

Accordingly, the government’s funding requirement for January 2014 is now significantly lessen than what it used to be – a particularly important development given Ireland’s desire to exit its bailout programme with the European Union and the International Monetary Fund just a month prior.

Related: Ireland Economy

“If we look forward at the capacity of Ireland to repay its debts, there is a kind of cliff hanging over us in January of 2014,” said Ireland’s Finance Minister Michael Noonan as quoted by the Financial Times, noting that the bond swap might be just the first for Ireland in returning to the international markets.

The island nation withdrew from international bond markets in September 2010 after bond yields had surged above the 6 percent mark. In July last year, yields for Irish bonds reached as high as 18 percent.

But recent positive data in regards to the Irish economy, coupled with the government’s proven ability to meet deficit reduction targets managed to lower interest rates now to more acceptable levels.

Though, the yield demanded by private investors for Irish bonds remains nearly double the cost of Ireland's bailout pact – the EU and the IMF had been charging Ireland an average interest rate of just 3.3 percent for a 67.5 billion euro ($87 billion) credit line – the latest bond swap “reflects substantial demand among investors for our short-dated paper and the resulting decline in yields on Irish paper recently,” said Ireland’s National Treasury Management Agency.

“The big thing is that sentiment towards Ireland has shifted since independent bank stress tests were conducted last year and Bank of Ireland was able to raise private capital in the summer of 2011,” said Dermot O’Leary, an economist at Goodbody Stockbrokers.

“International investors have taken the view that Ireland has the best chance of emerging from the economic crisis,” he added.