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UPDATE 2-Bumper demand seen for Ireland's first bond sale since bailout

Conor Humphries and John Geddie
Tuesday, 7 Jan 2014 | 4:59 AM ET

DUBLIN/LONDON, Jan 7 (Reuters/IFR) - Ireland looked set for a storming return to the international bond market on Tuesday, with bumper demand expected for the country's first debt sale since exiting its EU/IMF bailout last month.

The sale of 10-year bonds was launched via a syndicate of banks. No official size or price guidance has been given but sources close to the deal said the bond was likely to be sized at 3 billion euros and priced later on Tuesday at mid-swaps plus 140 basis points.

At current market rates that is just below a yield of 3.5 percent, which offers a small premium to Ireland's outstanding bonds.

Bids for the issue had already reached 9 billion euros, the sources said.

"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."

Irish debt rallied in the secondary market, with the yield on its benchmark 10-year bond falling 10 basis points to 3.27 percent.

Ireland's NTMA debt agency said on Monday that it would return to the market in the near future, but gave no details of the size of the issue.

The bond sale is Dublin's first since March, when it placed 5 billion euros of 10-year paper.

It will be a test of market confidence in Ireland's recovering economy and set a benchmark for Greece, Portugal and Cyprus, the three euro zone states still under sovereign bailout programmes.

"The syndicated deal is likely to be well oversubscribed and will mark an important milestone for Ireland and, indeed, the euro area," said Dermot O'Leary, chief economist at Goodbody Stockbrokers.

Dublin, which formally exited its bailout on Dec. 15, is already funded into 2015, but the NTMA wants to resume regular bond auctions to demonstrate a return to "business as usual" and to insure itself against possible future market turbulence.

Ireland's economy has shown signs it is picking up steam, with the jobless rate falling to 12.5 percent from a 2012 peak of 15.1 percent and property prices starting to rebound, and the government sees GDP growing by 2 percent this year.

Having peaked above 15 percent in 2011, yields on 10-year Irish bonds have dropped to about 3.4 percent - lower than rates of just over 3.9 percent for comparable debt from Spain and Italy, neither of which suffered the embarrassment of a sovereign bailout.

That suggests market confidence in Ireland's economy is relatively buoyant, though some investors are concerned about its national debt, which at 124 percent of GDP is among the highest in the EU.

Barclays, Citi Bank, Danske Bank, Deutsche Bank, Morgan Stanley and Davy Stockbrokers are joint lead managers on the sale.

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.