Funding and Debt Management
LOCKING IN LOW INTEREST RATES AND LONG MATURITIES
- The NTMA issued €13bn of bonds during 2015 at a weighted average yield of 1.51% and a weighted average maturity of just under 18 years.
- In February 2015 the NTMA issued Ireland’s first 30-year benchmark bond. A total of €4bn was raised at a yield of 2.09%.
- In March 2015 the NTMA completed the early repayments of Ireland’s IMF loans. In total just over €18bn was repaid early generating interest savings in excess of €1.5bn over the original lifetime of the loans.
IMPROVING DEBT DYNAMICS
- General Government Debt dropped to below 94% of GDP at end-2015 having peaked at just over 120% at end-2012.
- Taking account of cash and other assets, General Government Net Debt dropped below 80% of GDP at end-2015.
- The estimated weighted average maturity of Ireland’s long-term marketable and official debt was 12.3 years at end-2015.
REDUCING INTEREST COSTS
- Interest on the National Debt fell to just below €7bn in 2015, from almost €7.5bn in 2014 – the first year-on-year decline since 2008.
European ten year bond yields declined in early 2015 in anticipation of the introduction of the ECB quantitative easing measures in March. Yields during the summer months were volatile and saw a pricing correction. Irish ten year yields reached a high of 1.78% in June, before the downward trend resumed into year-end, closing at 1.15% at end-December.
10-Year Government Bond Yields 2015
One of the themes of the year was a tightening in Ireland’s spread to core European markets. Market participants, observing Ireland’s recovery and robust growth, began to price Ireland closer to countries such as France and Belgium.
Irish 10-Year Yield Spreads
|End-2014 %||End-2015 %|
During 2015 the NTMA issued €13bn of bonds with a weighted average yield of 1.51% and a weighted average maturity of just under 18 years. This compares with a weighted average yield of 2.84% and a weighted average maturity of just under 12 years in 2014. Favourable market conditions and solid investor demand for long-dated paper allowed the NTMA to lock in longer maturities at low interest rates.
The NTMA undertook two bond syndications in 2015. The first saw a new seven-year bond issued in January. A total of €4bn was raised at a yield of 0.87%. This was followed in February by the issuance of a new 30-year bond, where €4bn was a raised at a yield of 2.09%.
This was the first 30-year benchmark bond for Ireland, and saw significant interest from a range of investors. Of the €4bn issued, 95% was taken up by overseas investors. The main investor categories were asset managers, fund managers, pension funds and insurance companies.
30-Year Bond Syndication by Geographic Area
- Uk 26%
- Germany 24%
- France 13%
- US 7%
- Nordics 7%
- Ireland 5%
- Asia 2%
- Other Mainland 14%
- Other Non-EU 2%
The NTMA also held six bond auctions during the year, raising a total of €5bn.
NTMA Bond Auctions 2015
|12 February||2.4% Treasury Bond 2030||500||1.56||3.15|
|12 March||2% Treasury Bond 2045||1,000||1.31||2.07|
|14 May||0.8% Treasury Bond 2022||750||0.81||2.70|
|11 June||2.4% Treasury Bond 2030||750||2.22||2.85|
|10 September||2.4% Treasury Bond 2030||1,000||1.82||2.75|
|8 October||2.4% Treasury Bond 2030||1,000||1.65||2.28|
* excludes proceeds of non-competitive auctions
The NTMA’s Treasury Bill programme continued throughout 2015 with three auctions held during the year. As a result of the ECB’s expansionary monetary policies, Ireland was able to issue short-term debt at negative interest rates. There were no Treasury Bills outstanding at end-2015.
The NTMA also maintained Ireland’s Multi–Currency Euro Commercial Paper programme in 2015. There was €1bn outstanding at end-2015. Short-term debt was also issued in the form of Exchequer Notes and Central Treasury Notes, mainly to domestic institutional investors.
State Savings is the brand name applied by the NTMA to the range of Irish Government savings products offered to personal savers. During 2015 there were net inflows of €0.4bn into the State Savings products and at end-2015 the total amount outstanding was €19.5bn.
State Savings Products
|National Solidarity Bonds||3,445||869|
Figures may not total due to rounding.
General Government Debt (GGD) is a measure of the total gross consolidated debt of the State and is the measure used for comparative purposes across the European Union.
Ireland’s GGD at end-2015 was €201.3bn or 93.8% of GDP. The GGD/GDP ratio has fallen significantly since its year-end 2012 peak of just over 120% and is projected to fall further in the medium term.
GGD/GDP Ratio 2009 to 2021
Source: CSO (2009-2015) and Department of Finance Stability Programme Update April 2016 (2016-2021 forecasts)
GGD is a gross measure which does not allow for the netting off of cash balances and other financial assets. However, the CSO produces an estimate of General Government Net Debt which, at end-2015, stood at €171.4bn or 79.8% of GDP.
National Debt is the net debt incurred by the Exchequer after taking account of cash balances and other financial assets. The primary component of GGD is Gross National Debt. The NTMA’s responsibilities relate to management of the National Debt only.
Composition of Debt at End-2015
|EU/IMF Programme Funding||49.7|
|Other Medium and Long-term (MLT) Debt||1.2|
|State Savings Schemes*||16.7|
|Gross National Debt||196.6|
|Less Cash and other Financial Assets||13.6|
|Gross National Debt||196.6|
|General Government Debt Adjustments||4.6|
|General Government Debt||201.3|
Figures may not total due to rounding.
* State Savings Schemes also include moneys placed by depositors in the Post Office Savings Bank (POSB) which does not form part of the National Debt. These funds are mainly lent to the Exchequer as short-term advances and through the purchase of Irish Government Bonds. Taking into account the POSB Deposits, total State Savings outstanding were €19.5bn at end-2015.
Source: NTMA and Central Statistics Office
Gross National Debt at End-2015
- Fixed Rate Treasury Bonds 51.6%
- EU/IMF Programme 25.3%
- Floating Rate Bonds 11.5%
- Amortising Bonds 0.5%
- State Savings Products 8.5%
- Short-Term Debt 2.0%
- Other 0.6%
|Fixed Rate Treasury Bonds
Issued to Irish and international investors, primarily through syndications and regular auctions.
Loans provided under the three year EU/IMF programme entered into in 2010.
|Floating Rate Bonds
Issued to the Central Bank in exchange for the Promissory Notes provided to IBRC, following IBRC’s liquidation in 2013.
Bonds that pay an equal amount each year comprising both principal and interest. Issued to meet needs of Irish pensions industry.
|Total Long-Term Marketable and Official Debt||€175.4bn||12.3 Years|
Retail savings products provided to the general public through the Post Office.
Issued to Irish and international investors under a variety of programmes with a maturity of 12 months or less.
* Includes €0.5bn pre-paid margin in respect of the European Financial Stability Facility.
** Excludes borrowings from funds under the control of the Minister for Finance.
Debt Service Out-turn
The NTMA’s primary debt management objectives are to ensure adequate liquidity for the Exchequer and to optimise debt service costs over the medium term.
The net cash interest cost of the National Debt in 2015 was €6,979m, just over 6.5% below the corresponding figure for 2014. This was the first year-on-year decline since 2008. The early repayment of the bulk of the IMF loan facility and its replacement with cheaper, market-based funding was a significant factor in the year-on-year fall in the interest bill.
National Debt interest comprised 15.3% of Exchequer tax revenue in 2015 compared with 18.1% in 2014.
Irish Government Bond Market
Ireland’s benchmark bonds curve has a range of maturities, extending to 2045. Along with syndications and regular auctions, the NTMA undertook some small switching activity during the year, as part of normal market operations. It also bought back and cancelled €1.5bn of the 2038 floating rate bond and €0.5bn of the 2041 floating rate bond held by the Central Bank.
Irish Government Fixed Rate Treasury Bonds
|4.6% Treasury Bond 2016||18 April 2016||8,132|
|5.5% Treasury Bond 2017||18 October 2017||6,389|
|4.5% Treasury Bond 2018||18 October 2018||9,256|
|4.4% Treasury Bond 2019||18 June 2019||7,700|
|5.9% Treasury Bond 2019||18 October 2019||6,767|
|4.5% Treasury Bond 2020||18 April 2020||11,609|
|5.0% Treasury Bond 2020||18 October 2020||8,252|
|0.8% Treasury Bond 2022||15 March 2022||4,863|
|3.9% Treasury Bond 2023||20 March 2023||5,480|
|3.4% Treasury Bond 2024||18 March 2024||8,137|
|5.4% Treasury Bond 2025||13 March 2025||11,745|
|2.4% Treasury Bond 2030||15 May 2030||7,928|
|2.0% Treasury Bond 2045||18 February 2045||5,101|
* excluding repos
Total turnover by value in Irish Government bonds, as reported by the Irish Stock Exchange, was €245bn in 2015, compared to €257bn in 2014. Turnover at the start of the year was strong, particularly in January and February as a result of new issuance. This decreased during the summer months, when markets were perceived to be more volatile and less liquid. However strong volumes returned into year-end and the daily average turnover for 2015 was reported as €965m.
Positive developments in the Irish economy and improving debt dynamics led to a credit rating upgrade to A+ from Standard and Poor’s in June 2015
Ireland’s Sovereign Credit Ratings at End-2015
|Standard & Poor’s||A+||A-1||Stable|
In addition to borrowing for the Exchequer and debt management, the NTMA also performs a number of related functions.
Central Treasury Service
The NTMA’s Central Treasury Service takes deposits from, and makes advances to, non-commercial State bodies, as well as local government authorities, the Health Service Executive and education and training boards. The objective is to provide these bodies with a competitive alternative to the banking sector for their treasury business and thus to make savings for the Exchequer.
Dormant Accounts Fund
Balances on dormant accounts with banks, building societies and An Post and the net encashment value of certain life assurance policies are remitted to the State annually to be disbursed for charitable purposes or for purposes of community benefit. The period for determining dormancy is 15 years since the last customer-initiated transaction. In the case of life assurance policies with a specified term, it is five years after the end of that term. Account and policy holders may reclaim their moneys at any time from the relevant financial institution.
Pending disbursement, moneys in the Dormant Accounts Fund are managed by the NTMA. The NTMA had €242m under management at end-2015. €53.9m was transferred to the Fund in 2015, while €17.4m of previously dormant funds was reclaimed. Disbursements from the Fund amounted to €8.9m in 2015.
The NTMA also carries out the following functions:
- Scheme operator for the Credit Institutions (Eligible Liabilities Guarantee) Scheme 2009 which provided for the guarantee of certain bank liabilities. The ELG Scheme was discontinued for new liabilities effective from midnight on 28 March 2013.
- Funding the Housing Finance Agency under its €5bn short-term and medium-term Guaranteed Note Programme.
- Engaging in daily short-term cash management operations to regulate the level of Government cash balances at the Central Bank of Ireland. This is undertaken as part of the overall management of liquidity in the eurozone by the European Central Bank.
- Management of Ireland’s Carbon Fund.