The National Treasury Management Agency (NTMA) raised €1.5bn through its latest bond auction which was held today. Ireland has now completed 90% of its long term borrowing programme of €20bn for 2010. Allowing for cash balances, including €5bn of long term funding carried over from last year, the Exchequer is fully funded into the second quarter of 2011.

The NTMA said it offered two bonds in today’s auction, the 4.6% Treasury Bond 2016 and the 5.0% Treasury Bond 2020. The overall total amount of the two bonds offered in the auction was in the range of €1bn to €1.5bn.

It was decided to issue a total of €1.5bn, as the total bids received amounted to €4.959bn, or 3.3 times the maximum amount on offer in the auction. An amount of €750 million of the 4.6% Treasury Bond 2016 was issued where the total bids received were 3.6 times the amount allocated, while €750 million of the 5.0% Treasury Bond 2020 was also issued where the total bids received were 3 times the amount allocated.

The 2016 bond was sold at an average yield of 4.496% while the 2020 bond was sold at an average yield of 5.537%.

Today’s auction brings the total funds raised from the bond market in 2010 to €16.5bn. When account is taken of the €1.6bn raised in the domestic retail savings market the total long term funding raised so far this year amounts to €18.1bn.

NCB Stockbrokers economist, Brian Devine, commented: "Yesterday’s downgrade by Moody’s had little impact. Bid cover ratios remained high and spreads relative to Germany were inside those at the time of the June auctions. The big move in Irish spreads relative to German occurred in the period May to June, since when spreads have fluctuated around the 260-280bps (2.6-2.8%; 100 basis points = 1%) level at the 10 year maturity. Italy and Portugal have also followed a similar pattern. In contrast, Spain has actually seen its 10 year spread narrow from over 220bps at the start of July to 175bps.

Ireland sold €750mn of the 5% October 2020 at a weighted average yield of 5.537%. The auction was covered 3.0 times. The spread over the German 10 year benchmark is currently 275bps. In May the NTMA issued €750mn of the 4.5% Apr 2020 bond at a weighted average yield to maturity of 4.72%. At the time the spread over the German benchmark 10 year was 195bps. The Irish spread widened to 287bps at the time of the June auctions. Ireland and Portugal in particular widened out against Germany in the month to June, but spreads have since stabilized. Ireland’s 10 year spread relative to Portugal is 5bps inside Portugal relative to being 2bps wider at May auction.

Ireland also sold €750mn of the 4.6% April 2016 issue at a weighted average yield of 4.496%. The auction was covered 3.6 times. Last month the NTMA tapped also tapped the April 2016 issue for €750mn at a weighted average yield to maturity was 4.521% and was covered 3.1 times.

We expect that details of Budget 2011 will begin trickling into the media over the coming weeks. The Government needs to find €2bn (approx 1.3% of GDP) from current expenditure/taxation in addition to the €1bn which is due to be cut form capital expenditure. Ireland has gained a lot of credibility on the international stage for its efforts to date which equate to a fiscal consolidation of 8% of GDP. However, with the underlying deficit forecast to be in the range -11.5 to -12.0% and nearly 20% of GDP when account is taken of transfers to the banking sector, the budget needs to fulfill on these commitments at a minimum if the deficit to GDP ratio is to dip below 3% by 2014 and bond yields remain in check."