The main highlights since our last update have come from the bond market. The NTMA had a great start to the New Year, raising a total of €3bn from a syndicated tap of Ireland’s 2017 Treasury Bond along with a T-bill sale. The yields paid reflect the improvement in sentiment towards the Sovereign – the yield on the T-bills, at 0.20%, was well below the 0.55% paid for the previous T-bill sale in November, while the syndicated tap was priced at 3.32% – a far cry from the 5.90% the October 2017 bond was launched at last July.
Elsewhere, the State received just over €1bn from the sale of its Bank of Ireland CoCo, bringing its total cash receipts from that institution to over €3.5bn – some 75% of the funds the State injected into it. Taking its remaining preference and ordinary shares in Bank of Ireland into account, we believe that the State is very likely to generate a net profit from its involvement in that institution before it is eventually returned to full private ownership.
There was further encouraging news on the data front. Much stronger than expected Exchequer Returns figures for December point to a likely general government deficit for 2012 of 7.8%, well ahead of the deficit limit of 8.6% and Budget Day guidance of 8.2%. Both the Manufacturing (51.4) and Services (55.8) PMIs remained above the critical 50 level, which signifies expansion. Residential property prices increased at their fastest pace since 2006 during November (+1.1% m/m). The number of people signing on the Live Register fell for a sixth successive month in December, while the unemployment rate was steady at 14.6%. The goods trade balance widened to €4.3bn in November from October’s €3.3bn. Core retail sales remained in positive territory on an annual basis in both value and volume terms for a fourth successive month. One area of relative weakness was Industrial Production, which declined 2.1% m/m in November.
Overall, the above reflects what we have been saying for some months now – the economy is continuing its gradual recovery, which is bolstering investor sentiment towards both the Sovereign and the banks (as evidenced by almost €14bn of demand for the €4bn worth of T-bills, bonds and CoCos sold this month). We retain our growth forecasts for 2013 (+1.2%) and 2014 (+2.0%) for now.
Philip O’Sullivan, Chief Economist, NCB Stockbrokers Limited.