Ireland raises debt at record low to pay back bailout loans

* Funds will be used to repay IMF bailout loans early

* 2.5 percent yield compares with 5 percent IMF rate

* 9-10 bln euros of IMF aid to be repaid this month - source (Adds source on change to IMF repayment schedule)

By Padraic Halpin and Michael Turner

DUBLIN/LONDON, Nov 4 (Reuters/IFR) - Ireland (Other OTC: IRLD - news) raised 3.75 billion euros ($4.71 billion) in 15-year debt on Tuesday as it took advantage of low interest rates to start refinancing some of its bailout loans from the International Monetary Fund with cheaper market funding.

Ireland sold the new debt via syndication at a record-low yield of 2.49 percent, a level unthinkable just three years ago, when 10-year money was trading on secondary markets at 15 percent at the height of the euro zone debt crisis.

The drop in borrowing costs - matched across the euro zone - comes as economic growth in Ireland outpaces the rest of Europe, although data on Tuesday showed that consumers have yet to feel the recovery they are being consistently told is under way.

"To be able to take down 15-year money at these kind of levels is phenomenal for the Irish government, given where we were not too long ago," said Derek Kehoe, head of fixed income at BNP Paribas Ireland.

"You're also refinancing shorter-dated debt with longer-dated debt and at a lower price, so from a commercial perspective it's a great result."

Ireland is seeking to repay the more expensive IMF loans early to reduce the carrying cost of a national debt that ballooned when the economy and its banks crashed. Debt is set to remain above 100 percent of annual economic output until 2018.

The Irish government has estimated that it will save around 1.5 billion euros on debt-servicing costs over the next five years by refinancing 18.3 billion euros of its IMF loans, and had planned to do so in three equal tranches between now and 2016.

However, a source familiar with the process said it was now likely that this would be done in two tranches rather than three and that a first repayment of 9 to 10 billion euros would be made after the Swedish parliament ratifies the amended terms in mid-November, the last approval needed to sign off on the deal.

Ireland, which is fully pre-funded to the end of 2016 after resuming regular bond auctions this year, has also built up substantial cash buffers, which it plans to reduce and which will be used to cover the remainder of the refinancing, the source said.

Investors bid 8.4 billion euros for the new bond on Tuesday. One banker said it was not the "bun fight" witnessed in a similar-size deal in January. New 10-year paper then was met by demand totalling nearly four times the amount eventually sold.

The yield was less than half the 5.5 percent sought the last time Ireland issued 15-year debt five years ago. By comparison, interest on the IMF debt is near 5 percent.

It was also below the 3.54 percent in January's 10-year deal, showing how much progress Irish debt has made in catching up with France and Belgium - countries considered safe bets when Dublin was shunned by the market three years ago.

Reuters reported last month that Ireland's debt agency, the National Treasury Management Agency (NTMA), had told investors that it would like to issue 15-year debt to begin replacing the IMF loans.

Citigroup (NYSE: C - news) , Danske Bank (Other OTC: DNSKY - news) , Davy, Morgan Stanley (Xetra: 885836 - news) , Nomura and Royal Bank of Scotland (LSE: RBS.L - news) were joint lead managers on the sale.

CONSUMERS INDIFFERENT

Following the completion of its bailout last year, Ireland has been held up across the euro zone as proof that the bloc's austerity policies can work. Speaking in Dublin, German Finance Minister Wolfgang Schaeuble said last week that he was "jealous" of Irish economic growth, which is forecast to hit almost 5 percent this year.

The European Commission forecast on Tuesday that Ireland would be the fastest-growing economy in the EU in 2014, 2015 and 2016, also outstripping the United States as the recovery "broadens and gathers firm momentum".

However, many consumers have yet to feel the benefit. Some 100,000 people marched in towns across Ireland on Saturday in a second day of mass protests against the introduction of water charges, the biggest display of opposition to austerity after years of taking painful measures with little resistance.

Consumer sentiment fell sharply last month to its lowest level since June, data showed on Tuesday, after dropping from a near-eight-year high in September.

"We've had a tremendously difficult adjustment which the markets are very pleased to see, but we also have consumers that feel that they are not really seeing any of the benefits," KBC Ireland chief economist Austin Hughes said.

"Getting the balance right in terms of policy measures that keep investors happy but also keep voters happy is going to be a very testing task for government over the next while." (1 US dollar = 0.7964 euro) (Additional reporting by Helene Durand in London; Editing by John Stonestreet, Larry King and Mark Trevelyan)