Ireland and the National Treasury Management Agency (NTMA) yesterday took a significant step in fully regaining bond market access and so being able to exit the EU/IMF fiscal adjustment programme as planned at the end of next year. The Irish NTMA issued over EUR5.233bn in a joint switch/issuance operation, switching EUR1.04bn of the 13s and 14s, and printing EUR4.193bn of the 17s and 10/20s, giving a total issuance of EUR5.233bn (see details on next page).
The success of the operation exceeded almost all expectations and came at least three months ahead of the time market consensus had optimistically pencilled in for a return to the market for Ireland. We would expect further scaling up of the T-bill programme over the coming months, in both size and tenor, ahead of a more regular long-term bond issuance programme being reopened by the NTMA in Q4 or early next year.
This funding substantially reduces the 'funding cliff' risk that occurs in early 2014 with the EUR8.2bn redemption of the 01/14s. Yesterday’s issuance and switch-extension takes care of over 30% of the 2014 funding requirement by itself and a scaling up of the recently reopened T-bill programme, as well as the soon-to-be-introduced amortising and inflation-linked securities, is capable of providing another €10bn of this funding requirement over the next 12-18 months as well. This does not even take into account any relief gained over the coming months on the issue of the promissory note repayments. As such, the once-feared 2014 'funding cliff' posed by the redemption of the 4% January 2014 IRISH bond now looks increasingly likely to be pre-funded well in advance.
As we wrote in Flash Comment: Ireland returns to bond markets yesterday, we are convinced that rating agencies will soon remove Ireland from negative watch on the back of the renewed market access. Furthermore, we would not be surprised to see Ireland being put on review for upgrade back to investment grade in the near future. This would reinforce the positive spiral Ireland is currently in.