Ireland announces details of index-linked, amortising bonds
IRELAND - Ireland's debt management office is to start issuing index-linked and long-dated bonds with a lifetime of up to 35 years, with the amortising bonds designed to specifically appeal to the country's struggling defined benefit (DB) schemes.
According to information published by the National Treasury Management Agency (NTMA) today, the country plans to re-enter the sovereign debt market with bonds of maturities of between 15 and 35 years, as well as issue its first ever inflation-linked paper.
Discussing the changes in the NTMA's annual report, chief executive John Corrigan said: "In order to diversify and increase its sources of funding, particularly from the domestic market, the NTMA has developed, following consultation with the pensions industry, an amortising government bond that will facilitate the creation of long-term annuities and is also planning its first issue of an inflation-linked Irish government bond."
The agency said it was looking to raise between €3bn and €5bn from issuances over the next 18 months.
Danske Markets fixed income dealer Owen Callan said the target was "aggressive" and that the overall intake would be lower due to most interest initially coming from domestic buyers.
However, he said that, overall, Danske viewed the amortising bond as a positive development.
"It's a quite innovative idea, and I think some other countries will be looking at it," he told IPE.
"I know across the Danske Bank group we have been looking at, and maybe suggesting to the other debt management agencies we deal with, that this is a way of encouraging new and more diverse sources of funding."
He said the amortising bond - which repays the principal in stages over the lifetime of the paper, rather than at the end - would particularly appeal to pension funds, with the issuance by the NTMA designed to function as a basis for Ireland's new sovereign annuities.
Callan said it was difficult to say what the take-up on the Irish issuances would be due to the "conservative" nature of pension funds.
But he added that there would nonetheless be demand for products that could assist with their funding issues.
Contradicting previous reports of only reverse enquiry issuance being employed, the NTMA said it would also proceed with auctions at all stages.
The move comes as part of the country's attempt to re-establish itself on the sovereign debt market following its bailout by the EU and the IMF.
The NTMA issued its first new debt since the bailout earlier this month, auctioning €500m of three month paper at a yield of 1.8%.