Ireland returned to the capital markets with a splash on Wednesday, launching its first benchmark bond since the country's controversial bailout by the European Union.
The market's embrace of the 5 billion euros 10-year syndicated bond offer is further confirmation that Ireland is on the road back to fiscal health, and outperforming Italy and Spain in terms of yield.
Investors scrambled to get in on the deal, putting in more than 12 billion euros in orders as Ireland takes another step toward regaining full access to the international capital markets.
In January, the country became the first EU bailout recipient to return to the markets, and Wednesday's benchmark deal will help cement the Irish comeback.
"It looks absolutely great," said one banker who did not work on the deal.
Perfect Timing
Ireland's National Treasury Management Agency (NTMA) on Tuesday evening unveiled Barclays, Danske Bank, Davy, Goldman Sachs, HSBC and Nomura as joint lead managers on the deal.
The timing could hardly have been better, as investors have been clamoring for more yield and have been increasingly willing to embrace troubled names from the European periphery.
Bonds from Spanish agency FADE and Spain's CaixaBank have also drawn attracted strong demand this week, while Triple A rated Luxembourg struggled to find investor interest.
"Investors are desperate to capture yield," the banker said. "So many real money accounts have been underweight these peripheral names and can no longer afford to be, so they have a lot of buying to do."
As order books grew on Wednesday morning, the leads revised guidance on the March 2023 offering to mid-swaps 245 basis points (bp) area from an initial 250bp. The issue finally priced at 240bp, which another banker calculated would equate to a 4.13% yield.
"We've seen very strong sentiment for the periphery for most of the year, with the Italian elections proving the only hiccup," said a syndicate banker.
"The backdrop has been extremely favorable, and this Ireland deal is a confirmation of how far we've come."
Irish bond yields have fallen over the past 18 months and are trading below the equivalent levels of Spanish and Italian government bonds.
One syndicate banker said the initial price guidance level was derived from Ireland's outstanding 5% October 2020s and 5.4% March 2025 benchmarks. Interpolating these two deals suggests a fair value of 240 billion pounds - where it actually priced, indicating that the new bond will come flat to the curve.
Full Steam Ahead
In fact, Ireland's outstanding bonds have tightened across the curve this morning, implying the market is already taking into account the fact that the country could now be eligible for the ECB's Outright Monetary Transaction (OMT) programe.
"While no one quite knows the rules of the OMT, this 10-year should mean Ireland is one step closer to accessing it, which could have a material impact," said one banker.
The country's gradual return to financial markets has paved the way for an exit from its bailout later this year, and the debt agency has already said it will resume regular bond auctions later this year.
In January, the Republic enjoyed a highly successful return to the syndicated markets when it priced a 2.5 billion euro tap of its 5.5% October 2017 note amid very strong investor demand.
The tap attracted more than 200 investors - of whom only 13% were domestic -and an order book of 7 billion euros.
With that trade alone, Ireland met 25% of its 10 billion euro funding target for 2013.
Yields on Ireland's current benchmark 2020 bond fell to 3.68% last week, after EU finance ministers agreed to look at how to extend the maturity of emergency loans that Ireland and Portugal received under their bailouts.
In July 2011, the yield on the 2020 deal had been more than 15%.
