Skip to content

NTMA issues Ireland’s first ever Inflation-Linked Bond

20 April 2017 – The National Treasury Management Agency (NTMA) announces it has raised €609.5 million through the first-ever placement of an Inflation-Linked Bond.

The Bond was issued as a private placement under the NTMA’s Euro Medium Term Note (EMTN) Programme.

The interest payments and principal repayment will be linked to the Eurostat Harmonised Index of Consumer Prices (HICP) for Ireland, excluding tobacco.

The Bond has a tenor of 23 years and will mature in April 2040. The annual coupon on the Bond is 0.25%.

The decision to issue an inflation-linked bond for the first time is in line with the NTMA’s stated intention to diversify its issuance over the long term and increase the pool of investors in Irish bonds.  Inflation-linked bonds address a different source of investor demand from the fixed-rate bonds that are issued by the NTMA.

Frank O’Connor, NTMA Director of Funding and Debt Management said:

“Diversifying the pool of capital available to Ireland by investor type, geography and product is a core part of the NTMA’s funding strategy.  This is reflected in today’s issuance which allows Ireland to source funding from a broader spectrum of investors.

The transaction was executed through Davy on foot of a number of reverse enquiries by Irish investors.
 
Notes to Editors:

This is the NTMA’s first private placement under its EMTN programme since the 100-year Bond in April last year. A placement is different to a normal benchmark bond issuance in that Primary Dealers are not obliged to make ongoing prices in the bond.  While the bonds are tradable, an investor typically holds the security to maturity to match a liability.

The demand for this Bond came from investors who have Irish inflation-linked liabilities.  In the past, they may have used inflation-linked bonds issued by another Eurozone nation as a substitute.

The coupon on the bond represents the real yield at issue. The real yield is the yield on the bond excluding inflation.  The overall nominal return on the bond will depend on the path of inflation.  A simplified illustration of the potential impact of inflation over the life of the bond is set out below for information purposes.
 

Coupon Inflation over the period Nominal Return
0.25% Zero 0.25%
0.25% 1% 1.25%
0.25% 2% 2.25%

 
Note: the principal is protected against a fall in the index over the life of the bond.

Inflation-linked bonds have become an increasing component of the European bond market in recent years. France, Italy and Germany issue between 6% and 10% of their debt in the form of inflation-linked bonds.

In the euro area, consumer price inflation is measured by the Harmonised Index of Consumer Prices (HICP). The term “harmonised” denotes the fact that all the countries in the European Union follow the same methodology. The HICP is compiled by Eurostat and the national statistical institutes in accordance with harmonised statistical methods.

HICP measures the average change over time in the prices paid by households for a specific, regularly updated basket of consumer goods and services.

The annual average change in the Harmonised Index of Consumer Prices (HICP) for Ireland, excluding tobacco over the last 20 years was c. 1.7%.