Ireland in first test of bond markets since 2010 (AP)

DUBLIN ? Ireland tapped the bond markets Wednesday for the first time in 16 months in a significant test of investor sentiment toward the bailed-out nation.

The National Treasury Management Agency asked holders of euro11.8 billion ($15.2 billion) of bonds due for repayment in January 2014 ? the month after Ireland's EU-IMF loans are supposed to run out ? to swap them for new government bonds maturing in February 2015.

Analysts welcomed the move as likely to be the first of many to kick 2014 bond repayments farther down the fiscal road. They forecast that between euro1 billion and euro2 billion in 2014 securities would be swapped in Wednesday's offer.

Cathal O'Leary, an analyst at NCB Stockbrokers in Dublin, called the surprise exercise "a very smart move by the NTMA (because) it lessens the 2014 funding cliff."

The new three-year bonds were offered at an interest rate, or yield, of 5.15 percent, a premium over the existing bonds' current 4.9 percent. An announcement on the total investor take-up was expected Wednesday night.

Ireland withdrew from the markets in September 2010 after its bond yields surged above 6 percent. In recent days, those yields have fallen back to near 6 percent in response to the country's strong deficit-reduction program.

Still, that hypothetical price demanded by private investors remains nearly double the cost of Ireland's November 2010 bailout pact with the European Union and International Monetary Fund. Their euro67.5 billion ($87 billion) credit line commands interest rates averaging just 3.3 percent.

Ireland's bond yields have fallen in part because of the European Central Bank's insistence that Ireland repay in full the maturing bonds of its state-owned banks, most crucially the debts of the defunct Anglo Irish Bank.

Prime Minister Enda Kenny confirmed that, with reluctance, the government was repaying the full euro1.25 billion face value of Anglo bonds maturing Wednesday to unsecured investors.

A further euro5 billion in Anglo debt is due for repayment later this year. Ireland's 2009 nationalization of Anglo ? the most reckless lender to property developers during Ireland's lost Celtic Tiger boom ? is expected to cost taxpayers more than euro29 billion by the time those final bills are paid.

Kenny's year-old government repeatedly sought to negotiate a partial default on unsecured Anglo debt but the ECB blocked any concessions, arguing it would damage the credit worthiness of the wider eurozone. The ECB's veto is underwritten by its more than euro150 billion in liquidity loans to Ireland's largely state-owned banks.

Kenny told lawmakers that Ireland "is not looking for a writeoff. We have paid our way and will pay our way."

Several opposition figures shouted across the chamber accusing Kenny of abandoning his previous position and demanding that the government identify the foreign banks and hedge funds receiving full payouts. Kenny insisted the government didn't know the bondholders' identities.

A few dozen protesters from Ireland's Occupy movement blocked two entrances to the nearby Department of Finance at daybreak in protest at the bondholder payout. Some protesters chained themselves together and sat in sleeping bags. Police made no effort to arrest them as finance ministry workers used other entrances to get on with their work.

Finance Minister Michael Noonan told reporters that any short-term gain from burning bank bondholders would set back Ireland's overall plan to resume borrowing from bond markets over the coming year.

"The alternative would be worse," Noonan said. "We have been told on a number of occasions by the (European) Central Bank ... that it would have very, very serious consequences for Ireland if this weren't paid. Of course nobody likes doing it."

Source: http://us.rd.yahoo.com/dailynews/rss/eurobiz/*http%3A//news.yahoo.com/s/ap/20120125/ap_on_bi_ge/eu_ireland_financial_crisis

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