Ireland's National Treasury Management Agency said the surprise swap-and-sell auction of five and eight-year bills was aimed primarily at tempting institutional holders of Irish bonds to exchange bonds due for redemption in 2013 and 2014 for longer-term debts.
But in a sign of growing market confidence, most of Thursday's buyers invested new cash rather than flipping their existing debt holdings. And the total sale was close to double the figures touted beforehand by Dublin analysts and government officials. The 2017 bonds offered a yield of 5.9 percent, the 2020 bonds 6.1 percent.
"This marks a very significant step for Ireland on the way to full bond market access," said treasury chief John Corrigan.
Treasury officials said the buyers—18 international banks and funds that are Ireland's designated primary dealers—took (EURO)4.19 billion in new bonds and swapped (EURO)1.04 billion in existing bonds due to be repaid in 2013 and 2014.
"The strong demand and the fact that over (EURO)4 billion of this is new money is a significant step for Ireland in regaining our economic sovereignty," Finance Minister Michael Noonan said.
Corrigan emphasized that the funds would be used to cover the "funding cliff" that Ireland's government faces once the last of its (EURO)67.5 billion in international loans is spent next year.
Before Thursday's auction, Ireland faced bond repayments in January 2014 of (EURO)8.2 billion, but Corrigan said most if not all of the proceeds from the sale would go to repay those debts.
Ireland withdrew from bond markets in September 2010 as its borrowing costs soared above 6 percent, seen as unsustainably high. Two months later Ireland negotiated a European Union-International Monetary Fund bailout that offers loans at interest rates averaging less than 3.5 percent, but the government says that money will run out by the end of 2013.
Earlier this month Ireland dipped its toe into the bond markets, selling (EURO)500 million ($625 million) in 3-month bills at an average yield of 1.8 percent, better than expected.