Mr. John Corrigan:

The NTMA is also providing staff and business and support services and systems to NAMA, with almost half of its staff resources deployed in this area. From March 2010 to August 2011 the NTMA’s remit included certain banking system functions of the Minister for Finance. The delegation of banking system functions to the NTMA ceased with effect from August 2011 and the NTMA banking team was seconded to the Department of Finance. As a result, the NTMA no longer has any statutory responsibilities in the banking area. The ongoing restructuring of the banking sector remains a crucial factor in driving down yields on our bonds and regaining full market access.

We have made considerable progress in our re-engagement with the markets since my last appearance before the committee in September 2011. The NTMA’s working plan has been to return to the markets on a phased basis, both through shorter-term issuance and by taking advantage of opportunities to issue long-term debt when they arise. During 2012 and earlier this month we conducted a number of successful long-term debt market operations as well as making a return to a regular schedule of short-term treasury bill auctions.

In 2012 the NTMA's engagement with the debt markets included bond switches, the amount was €4.5 billion; the issuing of conventional bonds, the amount was €4.2 billion; and the issuing of a completely new instrument, Irish amortising bonds tailored to meet the needs of the domestic pensions industry and the amount was €1 billion. Earlier this month we raised €2.5 billion from the sale of five-year bonds at a yield of 3.32%. It was encouraging to see more than 200 institutional investors - including fund managers, pension funds, bank treasuries and insurance companies - placed orders totalling more than €7 billion, almost three times the amount sold with strong demand from the UK, mainland Europe and the US.

The combined effect of these debt market operations has been to eliminate the challenging funding cliff presented by abond repayment of almost €12 billion due in mid-January 2014, a priority for the NTMA. This substantial redemption coming so soon after the end of the EU-IMF programme was seen by investors as a major obstacle to our smooth exit from the programme. The gradual sourcing of funding in the market to meet that January 2014 repayment has been viewed positively by the investment community and has been a contributory factor to the continued fall in Irish bond yields.

Our 2012 funding included the introduction of a completely new debt instrument, Irish amortising bonds tailored to meet the needs of the domestic pension industry. Unlike standard bonds, where the annual interest payment is followed by the repayment of principal at maturity, the new amortising bonds will pay an equal amount each year over their lifetime. This reflects the preference of pension schemes and annuity providers for a steady stream of income.

The NTMA's objective is to diversify its investor base and part of that includes the provision of products that meet the needs of domestic investors. An active and stable domestic investor base is not only important in its own right, but is also an important signal of confidence to overseas investors considering investment in Irish bonds.

I would like to comment briefly on our treasury bill programme which we recommenced last July when we issued €500 million of three-month bills at an annual equivalent yield of 1.8%. Last week we held our fifth such auction, again €500 million of three-month bills but at an annual equivalent yield of 0.2%. We believe that with the success of the auctions we have regained normal market access at this short end of the curve.

Ireland has seen a significant decline in bond yields through 2012, most markedly in the shorter maturities, restoring the yield curve to a more normal upward slope compared to the inversion that marked much of 2011. For example, the yield on the 2014 bond has declined from 7.58% at the end of 2011 to 1.05% currently, while the yield on the October 2020 has declined from 8.26% at the end of 2011 to 4.11% currently.

The rally in Irish bond yields has been driven by a number of factors including: Ireland's consistent delivery on its EU-IMF programme commitments; the progressive elimination of the bond refinancing requirement in mid-January 2014; the EU leaders' supportive reference to Ireland in their statement of 29 June 2012 on the necessity to break the link between sovereign and banking debt; and the outright monetary transactions, so-called OMT, policy initiative by the European Central Bank.

In absolute terms the yields on our bonds are at low levels but the spreads against Germany remain high - currently 2.98% for the October 2020 bond. Some of this, of course, reflects differences in credit rating, Ireland being a BBB credit whereas Germany has a AAA rating, but another factor is that extremely low German yields are driven by Germany's status as a safe haven investment.

Following Ireland's entry into the EU-IMF programme at the end of 2010, our credibility among institutional investors had greatly diminished. Uncertainty remained throughout the first quarter of 2011, as investors awaited the results of Ireland's severe stress test and restructuring plan for the pillar banks. Following the publication of the PCAR results, the NTMA began the process of re-engaging with investors to rebuild damaged relationships, develop new ones and ultimately pave the way for eventual return to bond issuance.

This involved a structured programme of face-to-face meetings putting the investment case for Ireland to investors in Europe, the US, the Middle East, Asia and to the domestic market. These presentations are based on three simple principles: tell investors the facts, do not over-promise and return regularly with a progress update. It is a slow and deliberate process but one which I believe has already paid dividends and is being reflected through the rebuilding of Ireland's international reputation and, critically, investor buying of new debt issuance and falling yields on our bonds.

The following are seen as key issues from the perspective of investors and potential investors in Irish Government bonds: Ireland's ability and willingness to continue to meet the fiscal consolidation targets and the quarterly undertaking set out in the EU-IMF programme; Ireland continuing to achieve economic growth in spite of the ongoing requirement for fiscal consolidation; the risk of further recapitalisation requirements for the banks; continued progress in reducing contingent liabilities, of which NAMA's programme of asset disposals is the most important element; the regaining of trade competitiveness, highlighted by the return of large surpluses on the current account of the balance of international payments; improvement in Ireland's sovereign credit ratings; and the eventual resolution of the wider eurozone sovereign debt and banking crisis.

There have been a number of positive developments in these areas over the past year. Investors see the economy stabilising and are giving Ireland credit for being well ahead of other troubled European countries in implementing its adjustment process. Of course it is likely that much of this good news is priced into Ireland's reduced bond yields. In particular, the market has priced in, to a greater or lesser extent, relief on the promissory notes and other bank related debt. Indeed, notwithstanding all the steps that Ireland has taken and continues to take to address its domestic issues, wider eurozone uncertainty remains a risk to achieving sustainable market re-entry.

Ireland retains investment grade status with Standard & Poor's and Fitch, which have both set a rating of BBB+, which is three notches above sub-investment grade. Moody's downgraded Ireland to sub-investment grade in July 2011, which was the last downgrade by any of the major ratings agencies. As Ireland's average rating across the three main agencies is still investment grade, Irish Government bonds remain in the main bond indices.

In early 2012, each of the three main ratings agencies downgraded a number of eurozone countries in response to the sovereign debt and banking crisis. Ireland avoided a downgrade during that round of rating actions and has maintained its current rating, thanks to progress made in restoring our creditworthiness. Indeed the announcement by Fitch ratings last November that it was revising Ireland's outlook from negative to stable was the first positive action by a ratings agency on Ireland since the start of the financial crisis.

On a very general level, I note the ratings agencies are satisfied with the progress made by Ireland as reflected in the quarterly positive reports from the troika but the scope for ratings upgrades is constrained by the agencies' concerns about global economic growth on which Ireland is seen as dependent, the wider eurozone issues and the need to make progress towards a banking union in order to secure a delinking of sovereign from banks. It is instructive to note that NAMA is not a headline issue for the ratings agencies.

The reason that our sovereign ratings are so important, apart from somewhat limiting the market for the buyers of Ireland's sovereign debt, is the fact they represent a ceiling for the ratings of other Irish entities and are a key driver of the funding costs of the banking sector.

As I noted to the committee in 2011, in order to stabilise our debt to GDP ratio, Ireland needs to get back to running a primary budget surplus, that is the budget balance, excluding interest payments, as soon as possible. In the context of debt sustainability, this metric is far more important than the absolute level of debt per se. I note that the projections published by the Department of Finance in budget 2013 are for the general Government debt to GDP ratio to peak at around 120% of GDP in 2013 and to start to decline thereafter when the Government will once again be running primary budget surpluses.

The NTMA's focus in 2013 will be on stepping up its re-engagement with the markets so that Ireland is positioned to successfully exit the EU-IMF programme. To achieve this the NTMA plans to raise in the region of €10 billion during the year, subject to market conditions. With the €2.5 billion issue earlier this month, we are already a quarter of the way towards achieving this target. Raising the €10 billion this year, will give the NTMA and the investors the comfort of having a full year's advance funding in place. Such funding visibility is vital if Ireland is to successfully exit the programme at the end of the year.

Continuing access to the markets remains critically dependent on a number of external factors, particularly developments at a wider eurozone level. We are in something of an investment "sweet spot" in which we are benefiting not only from more positive sentiment towards Ireland, an issue to which I alluded, but also from greater risk appetite among investors generally. While I am encouraged by the positive start to the year, it would be unwise to be complacent. Markets do not necessarily move in a straight line and investor sentiment can be fickle. We are likely to proceed with a syndicated issue of a longer term bond prior to resuming regular scheduled bond auctions, although we will remain adaptable in the light of circumstances.

Before concluding, I will briefly address the National Pensions Reserve Fund and the work being done in refocusing its investments towards commercial investment in Ireland. As members may be aware, earlier this month the NPRF announced investment commitments to three new long-term funds that will provide €850 million of equity, credit and restructuring-recovery investment for Irish small and medium-sized businesses and mid-sized corporates. The NPRF played a significant role in the development of the funds and will be a cornerstone investor in each, alongside additional investment from third party investors. I have circulated for the information of members the press release issued by the National Pensions Reserve Fund Commission announcing these investments. I look forward to members' questions.