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UPDATE 4-Ireland draws bumper demand for first post-bailout bond

Conor Humphries and John Geddie
Tuesday, 7 Jan 2014 | 10:49 AM ET

* Ten-year issue about three times oversubscribed

* European peripheral yields tighten

* Sets seal on Ireland's completion of EU/IMF bailout

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, nearly four times the size of the final 3.75 billion euro issue, the country's NTMA debt agency said.

The bond - the first Dublin has sold since last March - was priced at mid-swaps plus 140 basis points, giving a yield of just over 3.5 percent, and marked a substantial step towards a target of raising 6-10 billion euros this year.

"This sale shows that Ireland has fully exited the EU/IMF (bailout)," Finance Minister Michael Noonan said in a statement.

"The yield of 3.54 percent illustrates the strength of Ireland's international reputation and brings us far closer to the borrowing rates of the strongest European economies."

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, which grew 1.7 percent year on year in the three months to September, 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."

Yields on Spain's 10-year benchmark bond fell nearly 10 basis points to 3.81 percent, while their Greek equivalent fell by 37 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 Dec. 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 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 bps of equivalent UK gilts, a premium that has shrunk from 225 bps a year ago and 1,600 at the 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.

The NTMA said Tuesday's issue drew interest from over 400 fund managers, pension funds and other investors, including some from the Middle East and Asia.

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