Ireland swaps euro3.5B in bonds, 1st time since 2010

AP News
|
Posted: Jan 25, 2012 11:53 AM
Ireland swaps euro3.5B in bonds, 1st time since 2010

Ireland tapped the bond markets Wednesday for the first time since its humiliating bailout and swapped more than euro3.5 billion ($4.6 billion) in treasuries, in an unexpectedly strong test of investor sentiment toward the debt-struck nation.

The National Treasury Management Agency asked holders of euro11.8 billion ($15.2 billion) of bonds due for repayment in January 2014 _ the month after Ireland's EU-IMF loans are supposed to run out _ to swap them for new government bonds maturing in February 2015.

Most analysts had set their sights low, forecasting that a swap of even 10 percent of the treasuries would represent success given Ireland's 16-month absence from the market. Wednesday's result means 30 percent of Ireland's early 2014 debt has been kicked a further year down the fiscal road.

The new three-year bonds were offered at an interest rate, or yield, of 5.15 percent, a premium over the existing bonds' current 4.9 percent.

Ireland withdrew from the markets in September 2010 after its bond yields surged above 6 percent. In recent days, those yields have fallen back to near 6 percent in response to European Union and International Monetary Fund endorsement of the country's strong deficit-reduction program.

Still, that hypothetical price demanded by private investors remains nearly double the cost of Ireland's November 2010 bailout pact. The EU, IMF and individual nations are charging Ireland an average interest rate of just 3.3 percent for the nation's euro67.5 billion ($87 billion) credit line.

Ireland's bond yields also have fallen in part because of the European Central Bank's insistence that Ireland repay in full the maturing bonds of its state-owned banks, most crucially the debts of the defunct Anglo Irish Bank.

Prime Minister Enda Kenny confirmed that, with reluctance, the government was repaying the full euro1.25 billion face value of Anglo bonds maturing Wednesday to unsecured investors.

A further euro5 billion in Anglo debt is due for repayment later this year. Ireland's 2009 nationalization of Anglo _ the most reckless lender to property developers during Ireland's lost Celtic Tiger boom _ is expected to cost taxpayers more than euro29 billion by the time those final bills are paid.

Kenny's year-old government repeatedly sought to negotiate a partial default on unsecured Anglo debt but the ECB blocked any concessions, arguing it would damage the creditworthiness of the wider eurozone. The ECB's veto is underwritten by its more than euro150 billion in liquidity loans to Ireland's largely state-owned banks.

Kenny told lawmakers that Ireland "is not looking for a write-off. We have paid our way and will pay our way."

Several opposition figures shouted across the chamber accusing Kenny of abandoning his previous position and demanding that the government identify the foreign banks and hedge funds receiving full payouts. Kenny insisted the government didn't know the bondholders' identities.

A few dozen protesters from Ireland's Occupy movement blocked two entrances to the nearby Department of Finance at daybreak in protest at the bondholder payout. Some protesters chained themselves together and sat in sleeping bags. Police made no effort to arrest them as finance ministry workers used other entrances to get on with their work.

Finance Minister Michael Noonan told reporters that any short-term gain from burning bank bondholders would set back Ireland's overall plan to resume borrowing from bond markets over the coming year.

"The alternative would be worse," Noonan said. "We have been told on a number of occasions by the (European) Central Bank ... that it would have very, very serious consequences for Ireland if this weren't paid. Of course nobody likes doing it."