Well this might not seem like a mystery at all, given the ballooning budget deficit and the overhang of banking problems. But I do want to ask what others think about the potential role of the overfunding/prefunding of the government deficit.
The NTMA’s recent Preliminary Results highlights the fact that there was additional borrowing of 8 per cent of GDP in 2008 over and above what was needed to cover the Government’s borrowing requirement for 2008. This extra amount has been banked (safely I am sure).
Of course this should all be transparent to an efficient market, but could it be that such a large volume of gross borrowing might have contributed to market sentiment against Irish paper and increased the spread over bunds?
After all, this additional borrowing affects the General Government Debt to GDP ratio driving this to 41 per cent. (Though it does not affect the traditional National Debt ratio which is around 31 per cent of GDP).