(August 23, 2012) — Ireland has issued a series of bonds this morning that should help the struggling Eurozone country find its financial footing, and assist its ailing pension funds.
The National Treasury Management Agency (NTMA) this morning issued five bonds to fund its internal coffers with maturities of between 15 years to 35 years and yields from 5.72% to 5.92%.
What marks the bonds out from any other sovereign issuance is that they are ‘amortising’ bonds. This means instead of issuing interest payments along the life of the bond and repaying the initial capital at the end, the bonds begin to repay the principal outlay from the outset.
Guidance from investment consultant Redington said the bond could work out as a better deal than a straight issuance for investors. This is because £100 received over 10 years is worth more them today – which is useful for accounting purposes – than £100 received in 20 years as inflation eats away value over time.
These bonds are also positive for issuer in that they do not have to refinance the whole bond at maturity as they can refund as the bond ‘amortises’.
The bonds are to be sold according to demand, so there is no official set level of issuance. However, market sources have said domestic pension funds have been interested in snapping up the securities as new funding standard regulations reward schemes that use sovereign bonds to match their pensioner liabilities.
Traders have estimated that up to €1 billion could be sold by the time the auction closes at 2pm GMT today.
Jerry Moriarty, chief executive of the Irish Association of Pension Funds, told aiCIO: “This is likely to be of interest to pension schemes as it is the first time the NTMA has issued bonds with a duration that allows them to match their pensioner liabilities.”
Due to the on-going financial uncertainty in Ireland, the yields on these bonds remain high compared to others being issued in the Eurozone – several ‘safe haven’ countries have seen their sovereign issuance sold with negative yields in recent months.
Moriarty said: “Many will also view the yield as being attractive, however the yield does reflect the risk the market is applying to Irish bonds and trustees will need to take that into account, as with all their investment decisions.”
Irish pension funds were hit by the quasi-collapse of the national economy in the height of the financial crash – this came barely months after massive slumps in its own stock market that had heavily relied on the construction sector.
Several of Ireland’s banks have been bailed out by the government, which is supported by the European Central Bank, but austerity and recovery plans seem to be working out better than other struggling nations within the Eurozone.
More information on the issuance can be found here.