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Friday, 24 November 2017

SSAR Bond: Ireland’s €5bn 10-year bond

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Standing tall

Ireland made a successful return to capital markets in March 2013 with its first new benchmark bond since the country’s controversial bailout in 2010.

The transaction was the ultimate reward for the tough reforms the country had to endure to win back the confidence of international investors and set it on the path to exiting its EU/IMF/ECB-led rescue programme at the end of 2013.

“Ireland has become the poster child for progress under Troika programmes,” said Chris Morris, a senior portfolio manager at Amundi in London.

Lead managers initially expected to raise €3bn through the 10-year bond sale, and were stunned when a whopping €13bn of orders from nearly 400 investors came in.

Impressive demand allowed Ireland’s National Treasury Management Agency to squeeze the new-issue premium out of the deal, and price an upsized €5bn bond flat to its secondary curve.

“Printing such big size with effectively no new issue premium was a very impressive outcome,” said Lars Humble, head of SSA syndicate at Goldman Sachs, which handled the deal alongside Barclays, Danske Bank, Davy, HSBC and Nomura.

Most of the book was allocated to real-money investors, with 82% heading outside Ireland. 

“The response was overwhelming with a great geographic spread and quality of investor,” said Oliver Whelan, director of funding and debt management at NTMA.

The steady improvement in Ireland’s borrowing costs over recent years has been widely attributed to one particularly bullish US fund manager. But the diversification of the country’s investor base was a more recent development, hard-earned through a series of bond switches, domestic amortisers and taps, all leading up to the comeback benchmark.

But while the market was well primed for Ireland’s return, the timing of the new 10-year was crucial to its success.

With yields grinding tighter over the first months of 2013, investors were increasingly willing to embrace troubled names from the European periphery. In the week that Ireland’s deal priced, bonds from Spanish agency FADE and Spain’s CaixaBank also flew out the door.

For Ireland’s supporters there was the added upside that a new benchmark with collective action clauses would all but confirm its future eligibility for the ECB’s backstop bond-buying programme.

Winning back the confidence of investors has proved a long and arduous road for bailout countries, but Ireland’s unerring commitment to austerity and well-managed return to markets, appears to have overshadowed concerns that still linger about its high debt and unemployment levels.

It is easy to forget that yields on Ireland’s 10-year bonds topped 15% in July 2011. At the end of 2013, its new 10-year benchmark which priced at 4.15% in March was trading at around 3.5%, comfortably through the likes of Spain and Italy.

To see the full digital edition of the IFR Review of the Year, please click here.

To purchase printed copies or a PDF of this report, please email gloria.balbastro@thomsonreuters.com

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