IRELAND - Ireland's National Treasury Management Agency (NTMA) has sold €1bn worth of Irish Amortising Bonds (IABs) at an average yield of 5.91%, with the lower-than-expected yield proof of the country being a "model economy", according to LCP.

Today's tap issue was the first time that the NTMA has offered the new IABs, designed to be used as the basis of the country's new sovereign annuities, as they pay out both a percentage of the principal as well as the coupon on a regular basis.

By far the most popular bonds were bonds with a maturity of 35 years, all yielding 5.92% - and the first time the country has offered such a maturity.

The 35-year bonds, maturing on 20 September 2047, raised €330.95m, while the 30-year bonds raised €322.9m and the 25-year bonds, €298.35m.

Less popular were the 20-year bonds yielding 5.82% , with €34.1m raised, and the 15-year bonds yielding 5.72%, raising €35m.

Speaking of the issuance, John Corrigan, chief executive of the NTMA said: "We are pleased with the result of today's launch of this new funding product, which marks a diversification of Ireland's sovereign funding programme and another step on the road to full access to the bond markets."
He added: "The success of today's transaction demonstrates the willingness of domestic investors to increase their holdings of Irish Government debt.

Corrigan said that he expected further bonds to be issued as trustees finalised funding proposals under the reinstated funding standard.

The successful issuance had reduced the risk of the "funding cliff", he added, with €11.9bn initially due to reach maturity in January 2014, he said.

Michael Butler, head of investment consulting with LCP Ireland said a number of his clients had "expressed interest" in employing sovereign bonds and annuities to reduce scheme deficits.

Butler said the regular repayments of principal would give cash flow benefits to pension funds, allowing them to match liabilities more efficiently than by using conventional bonds.

In additional, the bonds would allow pension funds to use a higher discount rate for liabilities, reducing the value of assets which they have to hold to satisfy the Irish minimum funding standard.

But he said that the offered yields were slightly lower than anticipated.

"When the initial announcement was made, we expected yields of around 6.1%," Butler said. "The lower level of yields reflects the progress made on the Irish economy in recent weeks."

"Ireland is seen as a model economy in terms of following International Monetary Fund and European Commission requirements on financing its deficit.""

Butler also said the 20bps gap in yields between the shortest- and longest-dated amortising bonds was smaller than he had expected.

"From a purely investment point of view, that makes the short-duration bonds slightly more attractive than the longer-duration bonds," he said. "However, pension funds typically go for longer-dated bonds to match future pension payments. So the vast majority of the interest has been in the 2037 bond yielding 5.92%."