Government raises €1.5bn at all-time low on the bond market to fund 2021 deficit
THE Government borrowed €1.5bn on the bond market at a record low cost to the exchequer yesterday.
The debt deals coming just days ahead of Tuesday’s Budget highlight the extremely benign borrowing environment that ministers will be able to access to fund what’s expected to be another large exchequer deficit in 2021.
Yesterday, the National Treasury Management Agency (NTMA) issued new bonds due to be repaid in 2027, 2030 and 2035. Only the debt falling due in 2035 carries a positive interest rate – meaning it costs money to borrow above simply paying back the capital. Even that interest is tiny.
In all, €1.5bn was borrowed yesterday across three bonds, the €650m that is now due to be repaid in 2027 comes with a negative yield, or interest cost, of -0.42pc – the lowest cost ever for the State.
Another €325m due in 2030 also came at a negative yield
of -0.19pc. The yield on €525m due in 2035 is 0.06pc.
The State has now borrowed €22.75bn from its regular bond market deals this year, with one last bond deal due in November. The funds are increasingly being used to plug the gap between tax raised and Government spending.
Increasingly too it is the European Central Bank (ECB) that is Ireland’s dominant bondholder. The ECB’s total holdings of Irish government bonds is €44bn and will rise to around €48bn by the end of this year – roughly a third of the total outstanding, according to research by Davy chief economist Conall MacCoille.
The Central Bank is not allowed lend directly to the Irish Government by buying new bonds as they are issued, but it can buy the IOUs on the secondary bond market which it is flooding with cash in a bid to lift growth across the euro area by stimulating lending.
That flood of cash has bought €11bn of Irish government bonds since the start of this year.
Central Bank economists said this week that the pandemic will push the national debt to €248bn by the end of 2022.
The national debt stood at just €37.6bn at the end of 2007, before the bank rescues and the EU/IMF bailout. The debt was €204bn at the start of this year.
Borrowing to see off the hit from Covid is justified and – thanks to low interest rates – affordable, the Central Bank said, but it warned that it will have to be cut in the long term.