It seems to have gone unnoticed in the Irish media on Thursday as the aftermath of Budget 2013 dominated the headlines and airwaves. But on 6th December, 2012, the National Treasury Management Agency (NTMA) announced that it had bought back €500m of the 5% Treasury Bond which was due to mature four months hence on 18th April 2013. The NTMA gave no reason for its action save to say “as part of its normal operations in the secondary bond market the NTMA has acquired holdings of this very short dated bond which it has now decided to cancel.”
“Normal operations” at the NTMA in the past have not included buying back debt, at least a review of press releases for 2012, 2011 and 2010 indicates this to be the case.
It is interesting that the NTMA which is funded by the Government has used a funding pool which includes the €67.5bn external programme finance from the Troika of the EU, ECB and IMF, to buy back bonds. Although the notice from the NTMA published on Thursday refers to “Treasury Bonds” these were long term bonds issued in January 2002, and there were €5.6bn of these still in issue. Thursday’s announcement means this has reduced to €5.1bn.
The NTMA has come in for some criticism on here in recent months for issuing billions of debt which is not immediately needed, and in fact shouldn’t be until the end of 2013. And the cash raised has been stuck on deposit at the Central Bank of Ireland where it earns 0.09% per annum – and no, there’s no decimal point missing here, it earns the negligible “Euro Overnight Index Average as set by the European Banking Federation on a daily basis”
Thursday’s action should save about €9m being the difference between €500m at 5% per annum for 133 days and €500m at 0.09% per annum for 133 days.
But is Ireland now pursuing a strategy of buying back debt and if so, why not issue €5bn of 3-month treasury notes paying about 0.5% per annum and buy back the rest of the April 2013 issue, that would save €90m.
Perhaps we’re more like Greece than we previously made out…