DUBLIN/LONDON, Jan 7 (Reuters/IFR) - Ireland made a storming return to the international bond market on Tuesday, with bumper demand for the country’s first debt sale since exiting its EU/IMF bailout helping to drive down yields across the euro zone’s periphery.
Investors bid more than 14 billion euros ($19 billion) for the new 10-year bond sold via syndication, around three times its likely final size of 3-4 billion euros, one of the banks managing the sale said.
The bond - the first Dublin has sold since last March - is expected to be priced later on Tuesday at mid-swaps plus 140 basis points, giving a yield of just over 3.5 percent.
Ireland’s cost of borrowing over 10 years has tumbled from a peak of about 15 percent, hit in 2011 as the euro zone’s debt crisis intensified.
A test of market confidence in Ireland’s recovering economy, the sale also sets a benchmark for Greece, Portugal and Cyprus, the euro zone states still under sovereign bailout programmes.
“Such extremely heavy demand reinforces the recent positive sentiment towards Ireland,” said Ryan McGrath, a Dublin-based bond dealer with Cantor Fitzgerald. “This bodes well for upcoming issuance by other euro zone peripheral countries.”
The strong demand for Ireland’s deal helped boost appetite for bonds from across the euro zone’s fragile periphery.
Yields on Spain’s 10-year benchmark bond were nearly 10 basis points tighter on the day at 3.81 percent, while their Greek equivalents fell by 17 basis points.
“The deal has attracted a lot of international interest, and with many of those orders unable to be filled, these investors have had to look elsewhere,” said Dan Shane, head of SSA syndicate at Morgan Stanley, one of the banks leading the deal.
Smaller euro zone states sometimes place bonds via a syndicate of banks as doing so helps them to reach a broader range of investors than through a traditional auction.
Ireland formally exited its 85 billion euro bailout on December 15, having sought the rescue in 2010 after a burst property bubble crippled the country’s banks and blew a hole in the public finances.
Dublin is already funded into 2015, but the NTMA debt agency has said it wants to resume regular bond auctions to demonstrate a return to “business as usual” and to insure itself against possible future market turbulence.
Irish debt rallied in the secondary market, with the yield on its benchmark 10-year bond plunging 10 basis points to an eight-year low of 3.27 percent. Five-year yields fell to within 4 bp of equivalent UK gilts, a premium that has shrunk from 225 bp a year ago and 1,600 at height of the crisis.
The high demand comes as Ireland’s economy shows signs it is picking up steam, with the jobless rate falling to 12.5 percent from a 2012 peak of 15.1 percent and the government expecting GDP growth of 2 percent this year.
Nevertheless, some investors have expressed concerned about its national debt, which at 124 percent of GDP remains among the highest in the European Union.
Additional reporting by Mike Dolan in London; Editing by Catherine Evans