January 4, 2019 / 3:59 PM / 3 months ago

Ireland plans bond deal next week to pre-empt Brexit vote volatility

LONDON (Reuters) - Ireland plans a bond sale early next week to avoid any volatility related to the UK’s upcoming vote on a Brexit agreement, according to several banking sources.

FILE PHOTO: Construction cranes are seen in the Irish Financial Services Centre in Dublin, Ireland April 24, 2017. REUTERS/Clodagh Kilcoyne

The Irish debt agency may announce a new deal as early as Monday and hold the sale on Tuesday, according to two of the bankers, both of whom manage debt sales for European governments including Ireland.

Rates strategists at Mizuho and Commerzbank also forecast that Ireland would sell bonds through syndication, where the issuer appoints banks to sell debt directly to investors.

“Our advice to them was to do the deal as early as possible to avoid any potential Brexit volatility,” said one of the bankers. “I think the deal will go well, but it’s better to avoid having to sell into a down market in case that Brexit vote goes badly.”

The British parliament is due to vote on Prime Minister Theresa May’s proposed Brexit agreement in the week beginning Jan. 14 following five days of debate. If she loses, Britain’s exit from the European Union could descend into chaos.

Most euro zone bond yields have been falling as stock market volatility pushes investors to the safety of government debt, but Ireland has been something of a laggard. Investors are worried about the effect of a messy Brexit on an economy that has close links with Britain.

Ireland’s bond yield spread over benchmark Germany on Friday reached its widest in over six months at 70 basis points. DE10IE10=RR

In fact, barring one day last year on May 29 — when euro zone breakup worries were at their peak thanks to an Italian political crisis — that Ireland/Germany spread is at its widest since April 2017.

“I think it’s a combination of the Brexit worries and the end of the QE [quantitative easing],” the second banker said. “Either way, I would be astonished if they don’t launch the deal next week.”

He said the sale is likely to go well with Irish economic indicators providing some cheer in recent times.

Commerzbank analysts forecast that Ireland will offer 4 billion euros (£3.6 billion) worth of 10-year bonds. That would fulfil a substantial chunk of the 14 billion to 18 billion euros the country needs to borrow in 2019.

Reporting by Abhinav Ramnarayan, editing by Larry King

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