Syndicated Tap of 2017 Bond

This post was written by Seamus Coffey

The NTMA have announced:

NTMA Announces Syndicated Tap of 2017 Bond

7 January 2013 – The National Treasury Management Agency (NTMA) has today announced to the market that it will seek to raise new money through a syndicated tap of its 2017 Treasury Bond in the near future, subject to market conditions.

A syndicated tap is the sale, at a pre-determined price, of additional amounts of an existing bond through a number of appointed banks and is open to all institutional investors. The NTMA has mandated Barclays, Danske, Davy, RBS and Société Générale as joint lead managers for the transaction, details of which will be announced in due course.

The finer details are scarce for the moment.  Someone referred to it as a “massive step”.  The indicative five-year yield as calculated by Bloomberg is here.

UPDATE: Results here.

48 Responses to “Syndicated Tap of 2017 Bond”

  1. Aisling Says:

    http://ftalphaville.ft.com/2013/01/07/1324703/peripheral-returns-to-the-bond-market-are-a-bit-like-pornography/

  2. seafoid Says:

    Fingers crossed it doesn’t morph into spinal tap. When does the global bond bubble pop?

  3. OMF Says:

    I suppose all those €100,000+ per annum executives got tired of sitting around picking their noses for the last 3 years, and figured they’d have to find something to actually do.

    This sounds like a hair brained derivative plan by an agency currently unable to actually sell a proper bond. I fully expect to discover that this will end up costing millions more in fees, or higher bonds rates, solely because it uses an opaque maze of demented financial abstractions.

    The only concrete thing we know right now is that a lot of people are going to be paid money over this which they should never have been allowed to earn. Oh, that and the giddy euphoria and hysterical exhalations of the usual (pensioned) positivity brigade. And yes, you can expect the likes of me to continue to have low expectations.

  4. grumpy Says:

    @OMF

    Its not an opaque maze of demented financial abstractions, its just offering to sell some gilts that are identical to ones already held by investors. Its called a tap because issuiong more is a bit like turning on the tap to top up.

    It is a proper bond.

  5. PR Guy Says:

    Hoorah. Let’s get into some more debt. Ah, the absurdity of allowing a country like Ireland to flex the credit card again. Best we hand over a little more oversight to Germany/EU/ECB before these people go mad. Or these people

    http://www.nationaldebtrelief.ie/?gclid=CN2d3NaZ2LQCFVM72wodYzMAkA

  6. Bond. Eoin Bond Says:

    @ OMF

    “This sounds like a hair brained derivative plan by an agency currently unable to actually sell a proper bond.”

    You genuinely havent a clue what you’re talking about, do you?

  7. bonosmate Says:

    @ OMF

    “This sounds like a hair brained derivative plan by an agency currently unable to actually sell a proper bond.”

    What are you smoking?

  8. Fungus the photo Says:

    Won’t sell much, after March!

  9. Paul W Says:

    Can’t see it on standalone fundamentals, notwithstanding that Ireland is the ‘best’ of a bad bunch. It’s still a EU supported proxy issue. Still, as per the FT artile link from Aisling, it is positive a market building exercise and that’s ultimately necessary. If they can get it away at what looks like a decent price, why not. Better that than indefinite Troika funding. It’s good to see that they are trying.

  10. seafóid Says:

    Best of luck to the NTMA but it’s going to take a long time to arrive at normality again. I suspect it will be some while before bond markets can stop Fed and ECB watching.

  11. Fiatluxjnr Says:

    As Grumpy says its all about yield. It’s a funny old world out there at the moment with chaps like Templeton taking outsize risk..but then he can afford to as his Oirish bonds are only a small proportion of his bond holdings. However, I wonder whether he is in for the long haul, as Bond thinks, as he is likely to reap less dosh if he goes to maturity.

  12. Fiatluxjnr Says:

    Btw, the IMF don’t think it’s sustainable according to Der Spiegal ..
    http://www.spiegel.de/international/europe/ireland-seeks-to-have-europe-share-in-risk-of-ailing-banking-sector-a-876124.html

  13. Bond. Eoin Bond Says:

    EU2.5bn issued at pricing of ms+250bps (should give a yield at c~3.35%), orders of EU7bn or so in the book. Had originally guided at EU2bn at +260bps, but demand sufficient to tighten price and raise amount.

  14. aiman Says:

    @seafóid - “I suspect it will be some while before bond markets can stop Fed and ECB watching”.

    Erm… bond markets always and everywhere watch central banks, especially the bigger CBs.

  15. Bond. Eoin Bond Says:

    @ Fiat

    i think IMF said that a deal on banks/prom notes would reduce fears over debt sustainability, rather than thinking “its not sustainable” themselves. Important difference - dont think IMF can lend money if there are genuine belief that its not sustainable.

  16. Fiatluxjnr Says:

    @Bond Eoin Bond
    In theory the IMF cannot lend if they perceive the debt as unsustainable…but look what happened in the case of Greece. A convoluted scheme to bring down the debt level to 120+% by 2020 was sufficient to enable them to pay out. But nobody really expects Greece to perform and an official haircut looks inevitable.

    As regards our own situation the following would seem to be the reality..it’s down to Angela. Kinda tricky…all the eggs in the one basket…
    “But to achieve this, Kenny will need the support of Chancellor Merkel and Germany’s parliament, the Bundestag. If he manages to push through his agenda, Europe’s taxpayers will have to absorb a significant portion of the risks of Ireland’s banking sector. If the Germans refuse, it will become more likely that Ireland will have to be bailed out a second time this autumn.

    It looks as if Kenny’s newfound talent still has to be put to the test.” Der Spiegal .

  17. Paul W Says:

    @ BEB
    Of course nothing has really changed with the overall debt trajectory. Without growth, official figures show that the (official) sov debt will exceed 130% by 2016 /17…..Very little economic positivity anywhere in the medium term…..

    With all this “good news”, there is now far less chance of a ‘gifted’ debt write-off. As SC has indicated, even restructure of the PNs is problematic given that they are so cheap. So, without a “tooth fairy” on debt, in the absence of growth (again, let’s see how 1H13 goes….) and without any meaningful improvement in the current deficit (c.19bn excluding the smoke and mirrors, as acknowledged a few months ago by the DoF’s projection figures), the odds right now are that matters will get worse (despite the wave of “good tidings” since 1st Jan). 2013 is a pivotal year, clearly.

  18. seafóid Says:

    Bien sur, Aiman, but they do it all the ****** time now.
    I don’t remember Greenspan getting as much attention as Bernanke.
    Wasn’t the market efficient once ?

  19. Eureka Says:

    @ Bond
    They could drop that yield even more couldn’t they

  20. seafóid Says:

    FT say

    “The Irish debt sale was managed by Barclays, Danske Bank, Davy, Royal Bank of Scotland and Société Générale. ”

    Would Davy have had a bigger role in the good old days ?

  21. OMF Says:

    You genuinely havent a clue what you’re talking about, do you?

    Says the man who hasn’t yet seen the “finer details” of this plan?

    Riddle me this then? What is a “Syndicated Bond Tap”? In particular, what do the terms “Syndicated” and “Tap” stand for, and how is this distinct from a normally issued bond?

    We could also ask why the NTMA is bothering to engage in any bonds sales at all, but that would only cause mischief.

  22. Bond. Eoin Bond Says:

    @ Seafoid

    a bigger role than on the mandate? Huh?

  23. Bond. Eoin Bond Says:

    @ OMF

    a syndicate involves a set of banks to lead the sale, usually due to it being of a large size. Ireland used syndicated bond issuance around 2-3 times a year back in 2008 and 09.

    a tap is an additional sale of a pre existing bond. They used to do these on a montly basis up until Sept 2010.

    A syndicated tap is therefore using a set of banks to sell a large amount of a pre existing bond. Genuinely, this isn’t rocket science, and sure as hell aint a derivative.

  24. seafóid Says:

    @ BEB

    One of 5 . Was it always like that ? It’s an honest question.

    BTW I am expecting an IT op ed from your man in Malahide .

  25. Bond. Eoin Bond Says:

    @ Seafoid

    yeah, four or five were always on these syndicates, standard operating procedure. Who’s the one out in Malahide?

  26. seafóid Says:

    This fellow . But maybe it isn’t Malahide

    • Sir, – Jennifer O’Connell’s take on this nation’s addiction to “failure porn” (Life, November 28th) invites numerous corroborations.
    It is such addiction, for example, that ensures a stunning 88 per cent return in Irish government bonds since July, 2011 has gone largely unheeded by the Irish media, politicians and, most disturbingly, an insolvent Irish pensions fund industry . . . unheeded by all, perhaps, except those clear-headed international investors who see the improving creditworthiness that we ourselves discredit. – Yours, etc,
    DONAL O’MAHONY,

  27. Bond. Eoin Bond Says:

    @ Seafoid

    thought it was Dalkey or somewhere to be honest!

  28. aiman Says:

    @Seafóid - Greenspan, Volcker before him, and Tietmeyer and all the rest of the Buba tendency also. Fed-watching started in earnest in the 1980s with Volcker.

    When you get markets watching central bankers, and central bankers watching markets, and neither of them looking out the feckin’ window at the real economy, merely at each others’ expected reactions to it, you get a snafu such as we’ve had over the last while.

  29. tullmcadoo Says:

    Mr Bond

    Donal is a southsider…near Brayruit. Another spot on forecast from this blog-30 miles off target.

  30. OMF Says:

    A syndicated tap is therefore using a set of banks to sell a large amount of a pre existing bond. Genuinely, this isn’t rocket science, and sure as hell aint a derivative.

    Why not just have a normal bond auction? Or, if syndicated bonds taps are so great, why not replace auctions with those instead. In short, what is the catch? My money is on bonuses and fees for everyone concerned(who isn’t paying for it).

  31. Aiman Says:

    @OMF - a syndicated tap is one of many legitimate and proven ways to raise funds. As BEB has tried to explain, a tap is a top-up of an existing bond. The existing amount of the 2017 bond was below optimal size (generally reckoned to be €5bn) which ensures liquidity in a given bond. The syndication (which word you seem to be confusing with “synthetic”, hence the derivative comment) was, presumably, to concentrate demand, and to charge those five appointed with producing a specified (to them) minimum amount of bids, such as to aggregate to or above the amount NTMA wished to sell.

    In happier days, or days we thought were happier, when people willingly queued up to buy Irish debt at a sliver over German yields, a simple auction might well have done the job as well. Times have however changed. Less than 18 months ago Irish debt was being dumped on the open market by panicked holders, at a ludicrous (in hindsight) 14%. Syndication ensures a pre-commitment from the participating banks and brokers.

    Try reading http://ftalphaville.ft.com/2011/01/19/462166/eurozone-bond-syndication-for-and-against/ , or even just Google “bond syndication”.

  32. Bond. Eoin Bond... Says:

    @ Aiman

    U’ve got more patience than me. Spot on.

    @ OMF

    I stand by my original comment way up above.

  33. OMF Says:

    The syndication (which word you seem to be confusing with “synthetic”, hence the derivative comment)

    I was actually “confusing” it with “syndicate”, as in “crime syndicate”; the fact that we are talking about syndicates of banks just makes the connection explicit.

    As BEB has tried to explain, a tap is a top-up of an existing bond. The existing amount of the 2017 bond was below optimal size (generally reckoned to be €5bn) which ensures liquidity in a given bond.

    I find this to be an opaque if not meaningless explanation. A “Tap” “Tops-up” a bond which was below a “size” (or was that yield?). These analogies appear to be made of mental silly-putty. They’re selling an IOU for money–all superfluous adjectives cost €10 million in fees and interest.

    I take it the government authorised the NTMA to issue a certain monetary value of 2017 bonds a few years ago, which the NTMA then failed to sell, necessitating the IMF bailout. So, instead of the government authorising new bonds (perhaps it is prohibited from this) the NTMA is instead trying to sell these bonds a second time.

    However this time around, they have paid fees to a select groups of banks who will agree to buy the bonds come what may (presumably using the bailout money those banks received from the ECB/ICB)(Of course the ECB doesn’t finance governments, perish the thought!). This all costs extra money.

    So I am skeptical that there is any meaning to these financial buzzwords beyond the fundamental fact that the Irish exchequer is paying more for the privilege of getting into even more debt. The Government is issuing even more IOUs, digging us all a little deeper in the hole, and for no other reason than to pay the Rolls Royce pensions of the people doing the shovelling.

    So given that we’ve wasted enough time contemplating how many syndicates of crooked angels can sell bonds on a pin, let’s focus instead on the real question: Why should the NTMA be selling bonds at all right now?

  34. Bond. Eoin Bond... Says:

    Clearly just a trolling exercise being conducted now.

    DNFTT.

  35. David O'Donnell Says:

    +

  36. CJ Hughes Says:

    Hooray. We got money today. Slightly cheaper than the 3.5% on bailout funds. Onwards on upwards. Fair play to Noonan and all the boyyos in the NTMA. Sterling job lads.

    Frankly, its a nice story but lets not get ahead of ourselves by simply saying this reflects Ireland’s recovery story. Institutions who bought Irish bonds from the primary/secondary market over the last 12 months are making investment decisions that are not simply based on taking a punt on a recovery story. While the recovery story plays its part, it is a ‘fundamental’ consideration of the investment thesis. Technical considerations play just as an important a role in the investment decisions. But you would never hear about the ‘technical’ considerations in the newspapers because they are unique to the investor, their needs and their view of the market and have nothing to do with the issuer of the bond directly.

    The 2017 bond was issued last July at a price of 5.9%. I remember reading about it and the comments made by people saying that it reflected that Ireland’s recovery is on track. IMO the recovery story had only little to do with it. Attractive pricing; lack of supply for similar newly issued or secondary supply of paper of the same maturity; a back stop of emergency funding at a price of 3.5% to support the issuer if things turned south again; fact that Ireland had exposed all its warts to the world, that any further surprises were likely to be positives, or at least negatives will be less frequent/on a declining rate (as opposed to the likes of Spain who continues to deny it is also a leper). These are some considerations that you would not have read about in any media outlet. Furthermore, there are other considerations that would be unique to each investor. Things such as having to match their companies/funds investment yield to that of their liabilities (i.e. pension/insurance funds) are unique to each investor. Risk tolerance, size of portfolios and thus % of capital they allocate to a particular idea are all things that play a role in whether someone buys or sells something.

    I contacted clients of mine last July to tell them to buy Irish debt. But it had nothing to do with the recovery story. I see Ireland every day on the streets, when I speak to my friends and there is none now and was no recovery story worth talking about back then! My rationale for investing in Irish government debt last July was simply because I thought it was grossly mis-priced. Factoring in a 25% reduction in final principle repayments (hair cuts) and also paying you coupons based off the haircut 75% of principle you still would have been better off buying Irish 10yr debt and holding it to maturity, as opposed to the alternative of investing in German 10yr bonds, based on the prices of each bond the day I sent out the note, 7th of July 2011. Even if you thought you were only going to be repaid 75% of the face value of the bond and only receive interest payments based on the % interest rate x 75% principle you were making a considerable profit above that which you would have made holding the German 10yr.

    As it happened Templeton announced shortly after that they were getting involved in Irish bonds. Media frenzy ensued. For the media and politicians, Templeton stated that they see significant recovery prospects for Ireland after all the hard work and tough decisions that the lads had to make. Behind closed doors Templeton, IMO, were saying this is an investment that we can make today due to the extreme mis-pricing of these assets that makes them considerably cheap. We will hold them until we believe that A) they reflect their true fair value based on our set of observations and requirements (fundamental and technical) or B) until they become mis-priced to the other extreme and become expensive. Whatever they may have been saying behind closed doors I truly believe that it had little to do with Irelands recovery story and much more to do with mis-priced financial assets, investment objectives, proportion of risk capital that could be allocated to the idea, etc. If anything, getting it into the public domain that Templeton thought our lads in government were great was only made because it would help get Templeton closer to the inner sanctum of the Dept of Finance and NTMA and therefore closer to the private information that helps make good investors ‘great’ investors.

    Anyways, I have had my rant. Keep up the good work IE.ie. Just on my last note, I would like people to maybe reassess their use of the word ‘recovery’ and maybe try and substitute it for a word like ’stabilising’ instead. Recovery implies “a return to”. I have a family member who has been going in an out of hospital for the last 12yrs. The amount of times I have heard the word recovery used. False hopes and the realisation that you were wrong to have them will leave you confused and cynical. I learned to no longer wish that things get better and am now very content that things are simply no longer getting any worse.

  37. David O'Donnell Says:

    The National Treasury Management Agency said 13 per cent of the bonds issued today were taken up by domestic investors and 87 per cent by overseas investors.

    “The overseas investors were mainly from the UK (35.6 per cent), Nordic countries (12.4 per cent), France (9.5 per cent), and Germany (7.2 per cent). Outside of Europe, the US and Asia together accounted for less than 4 per cent,” the agency said. “There was broad investor interest in the issue with over 200 investors submitting bids, including fund managers, banks, pension funds and insurance companies.” [Irish Times]

  38. OMF Says:

    Clearly just a trolling exercise being conducted now.

    I’m not drinking the buzzword Kool-Aid on this one; nor am I willing to give the Government the benefit of the doubt when it comes to the public finances. That does not make me a troll — though a cynic perhaps.

    But we could all do with being a bit more cynical when it comes to the likes of the NTMA. What percentage of your pension do you think will be subject to a “syndicated tap” when these bonds finally have to be paid for?

  39. Aiman Says:

    OMF - I’ll respect the site, and keep my mouth shut. Any chance you’d do likewise?

  40. Bond. Eoin Bond Says:

    @ OMF

    do we at least agree that the following was an idiotic and baseless comment from you?

    “This sounds like a hair brained derivative plan by an agency currently unable to actually sell a proper bond.”

  41. seafóid Says:

    @Aiman

    It’s worse than that. The markets are dependent on the Fed and the ECB. They don’t work at the moment. 2012 was a relatively good year for markets but only because of QE3 and Draghi’s trillion. In the real world there was very little progress. Bond yields say as much. Even though many risk prices rose key stress indicators like the EUR/CHF exchange rate didn’t budge.

    Sure bondwallahs watched Volcker in the 80s but they weren’t addicted to transfusions like they are now.

    The notion that the US economy will reach escape velocity and no longer need the help of the Fed in 2013 is fanciful, IMO.

    This is a financial crisis that will run and run.

  42. seafóid Says:

    There is no general thread , ochon, but how about this from the IT

    http://www.irishtimes.com/newspaper/breaking/2013/0109/breaking22.html

    “O’Connell Street has now been re-opened in both directions is currently closed in both directions.”

  43. Fiatluxjnr Says:

    News on RTE just had an item about the boss of the NTMA complaining that Moody’s still rated us as junk.
    Wonder why these guys are buying junk rated bonds!

  44. OMF Says:

    do we at least agree that the following was an idiotic and baseless comment from you?

    No. It does sound like hair brained derivative type scheme, and the NTMA is still unable to sell a proper bond. I stand by my opinion.

    OMF - I’ll respect the site, and keep my mouth shut. Any chance you’d do likewise?

    The implication being that I am disrespecting the site by expressing my opinion. Or that the NTMA and the Government still deserve the benefit of the doubt when it comes to our public debts? Or that keeping your mouth shut is an appropriate adult response to disagreeing with public policy?(Only in Ireland…)

    People seem to forget just how much damage has been done to this country, in large part by the very same crowd behind deals like this one. You may scorn my booing from the peanut gallery, but how much more disgraceful is the applause from the balconies? All while the performers are still trying to set fire to the theatre.

  45. aiman Says:

    OMF - you’re disrespecting the site by talking know-nothing rubbish. Will you next round on somebody for mentioning GDP or CPI or any of the other meaningless jargon that economists spout?

    Woe betide the person who mentions leptokurtosis - god knows what you’d think that meant, or how you’d react. But I’ll bet it’d involve lots of self-righteous anger.

    No Google-peeking now - what do you think it means?

  46. Aisling Says:

    @aiman Maybe if you really believe that Ireland will default you could view the loans as having an implicit call option over the Government jet should it ever land in Ghana? The Libertad escaped under the International Law of the Sea so the LE Aoife, Aisling, Eithne and Emer are all safe, but the Government jet…

    That would render them derivatives would it not? Not very sensibly priced derivatives mind, but derivatives none the less.

  47. OMF Says:

    Woe betide the person who mentions leptokurtosis - god knows what you’d think that meant, or how you’d react. But I’ll bet it’d involve lots of self-righteous anger.

    Confirmed for finance/economics graduate. Shallow attempts at intellectual intimidation are typical of kinds of “smart people” responsible for the financial creativity that got us into this mess. It’s basically a form of academic dishonesty, just as tossing around buzzwords like “Syndicated tapping” without explanation is a dishonest form of financial journalism.

    Leptokurtosis, and Black-Scholes models, copula-based correlations, pricing models, and every other kind of numerological sophistry as removed from financial reality as the bottles of Bollinger used to disprove them. You financiers wouldn’t know mathematics if it hit you on the side of the head. You’re making it up as you go along. Basis points! It’s a hundredth of a per-cent! The Black-Scholes model? It’s the heat equation. And nowhere is your ineptitude more apparent than in your collective failure to understand, much less control, the financial system of your own creation.

    Do I understand all the nuances and artificial complexities of “Syndicated Bond Taps”? No. But neither do I need to understand them, nor any of the rest of the financial shell games being played by overpaid bankers and civil servants. All I and the general public need understand is that these things cost us money. And ultimately that is all there is to understand.

    Your excel sheet pantomimes would be amusing if they weren’t costing the rest of us so much money. It’s unsurprising you’d be sensitive to criticisms of the hollow ivory towers you yourselves have failed to grasp. Everything fundamental in finance is simple, and everything which is complicated is superfluous. Now go away before I lecture you on elliptic functions.

  48. Aiman Says:

    @OMF - “Do I understand all the nuances and artificial complexities of “Syndicated Bond Taps”? No. But neither do I need to understand them”

    QED

    Isn’t there enough for you out there to be rightly angry at that you DO understand, without making a fool/troll out of yourself? I’d have thought there was plenty.

    PS Thanks for the elevation to graduate. My CV needed sprucing up. So do my non-existent Excel abilities.

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