Irish bond sale succeeds despite budget fears

Ireland has sold €1.5bn (£1.3bn) of bonds, at the top end of its target range, as investors' appetite for the crisis-struck country's debt remained strong despite fears that its government finances are spiralling out of control. Bond yields were well below those seen on secondary markets on Monday, with the National Treasury Management Agency in Dublin selling €500m of bonds maturing in 2014 at an average yield of 4.767% and €1bn of 2018 bonds at a yield of 6.023%. The total bids received for the 2014 bond were 5.1 times the amount allocated while those for the 2018 bond were 2.9 times. "The results confirm that today's auction was successful, as we had expected," said Sonia Pangusion, Irish analyst for IHS Global Insight. "The results also indicate that the markets somehow overreacted to the recent rumours that the International Monetary Fund is advancing towards Ireland. Rumours and speculation about Ireland and its state of public finances will be somewhat unavoidable and in a way understandable, while the country continues to struggle to keep the deficit under control." Ten-year government bonds have been hitting new record highs amid fresh worries over Ireland's economic recovery. The Irish central bank warned yesterday that even tougher action on public spending may be required to win back investor confidence and cut interest payments on national debt. Investors are demanding high premiums to buy Irish debt due to growing concerns about the escalating cost of the government's bailout of Ireland's stricken banking sector. The cost of rescuing the nationalised Anglo Irish Bank , which recently reported the biggest corporate loss in Irish history , is set to push Ireland's budget deficit to 25% of GDP this year. The government insists it can slash this to 3%, as required under EU rules, by 2014. "The main challenge comes from the revenues side, as revenues, particularly income taxes will remain weak given the expected poor performance of the labour market for the rest of the year and the still weak economic outlook," said Pangusion. "Therefore, it is imperative that the expenditure side is tackled with greater determination, something always politically nasty, particularly when [prime minister Brian] Cowen's popularity is at historical lows."