Ciaran O’Hagan on the Bond Market Post author By Philip Lane Post date September 21, 2010 His article is here. Categories In Banking Crisis, Fiscal Policy Tags Irish bond yield 146 Comments on Ciaran O’Hagan on the Bond Market ← Governor Honohan’s Address on the Banks and the Budget → QNHS for 2010:Q2 146 replies on “Ciaran O’Hagan on the Bond Market” 1. Brian Cowen wasn’t elected taoiseach until 2008. 2. Rising interest rates, a vast government spending deficit, the rising cost of the bank bailout, domestic debt-deflation and stagnant economic growth are a recipe for either (a) some form of default / reneging on financial commitments or (b) deep, deep austerity. 3. If Ireland’s credit is “for now as safe as houses” why is an Irish 10-year bond trading at a 30% discount to its German equivalent. Market prices imply a 100% probability of a 30% haircut / a 30% probability of a 100% haircut / anywhere inbetween. 4. How many of those assuring us that this is all “manageable” have put their money where their mouths are and recently bought large chunks of Irish government debt? It’s time people were asked whether they are eating their own cooking. (I direct this point not at CO’H but at leading figures in the government apparatus here – actions speak louder than words). June 14, 2007, the very day Brian Cowen was elected Taoiseach, was also a day when mortgage risk in the US exploded on the scene. Ireland, given the openness of its economy, was among the first to be hit. That should of course be Bertie Ahern but in the third week of July 2007, when the subprime crisis was just placing the world on notice, the yield on the 10-year maturity Irish sovereign bond was lower than the yield on a comparable German bund. I don’t know why Ciaran picked June 14th as notable because again in July, Chuck Prince of Citi infamously told the FT, “As long as the music is playing, you’ve got to get up and dance.” – – this was exactly 1 month before the onset of the credit crunch. I agree with Cormac that all these ostensibly reassuring words are a debased currency — usually made by bankers and stockbrokers who avoid recommending change in the area they are most familiar with. *CITIGROUP’S BUITER SAYS YIELDS ON IRISH BONDS `VERY GOOD’ *BUITER SAYS HIGH YIELD ON 10-YR IRISH BOND `RIDICULOUS NUMBER’ Not a fan of Constantin apparently…more in the Honohan camp… Sept. 21 (Bloomberg) — Willem Buiter, Chief Economist at Citigroup Inc., said the current yield on Irish 10-year bonds is a “ridiculously number.” The yields on bonds due to be sold today are “very good,” Buiter said in an interview with Dublin’s RTE Radio today. “People should realise that Ireland isn’t Greece and get the stuff.” A good point made about the pension reserve fund. Personally I would much prefer to see that money invested in Ireland, creating jobs here, than creating jobs abroad. Since the NPRF’s inception in 2001, the Discretionary Portfolio (excluding the bank capital injections) has delivered an annualised return of 2.6% per annum. The investments in BoI and AIB may achieve a better return than the well-paid fund managers. Good article by Ciaran. Still I am sure people will line up and slate him for having something positive to say. The second such article in a week, following Donal O’Mahony last week. Not that I’m sure either of them give a toss, but their analyses are very similar to those that I’ve posted for many months on this site, to general derision. I wonder if the government is orchestrating them behind the scenes, or if the sane economists have simply decided that the nutter economist have made the running in the media long enough? I wasn’t over-dramatising when I pointed out last week what the stakes are for the two schools of economists in Ireland. On the one hand, we have Messrs McWilliams, Kelly and Gurgdiev and others all saying that it is inevitable that Ireland will go bust in a relatively short period of time, and pushing up bond prices as a result. On the other hand, we have Messrs O’Mahony, O’Hagan and others saying that they are talking nonsense and that the debt is entirely manageable and barely any worse than the EU average. Clearly, one or the other will be totaly discredited in a couple of years time. I only wish Paddy Power took bets on which. I think Ciaran is right if we can get our deficits under control and publish a detailed multi year budget we should be OK. But as Ciaran says that means a property tax and many other unpopular political decisions. The detailed multi year budget in itself would do much to bring down our borrowing costs but I just don’t see the government doing that before a GE. If the yield is so ridiculous, why aren’t buyers, eh, filling their boots? @ hoganmahew – well the ECB is! Can anyone explain the rational or workings behind the actual rates paid on specific bonds. Can someone explain in a simple sense how does the Irl – Ger differential move from 20BPs to 400BPs within a (say) two year period? It seems to be a question that any commentator has shirked in recent days – most simply reference “the markets”………. As an aside – It would seem that currently a ten year irish govt bond represents a fantastic return for investors? I have a problem with a property tax where I have a mortgage which is close to or exceeds the value of my property. If I have no equity out of which to fund the tax, i.e., I cannot take it out of the value of that which is being taxed, then the tax is simply an additional income tax based on how I chose to spend my money in the past. This would be very annoying to me, and I expect others, for the following reasons: 1. I am already labouring under, and honouring, a large private debt incurred as a result of a bubble that came about through the State failing in its duty to regulate. This tax will be disproportionately hard on those who are struggling the most at the moment and whose futures are most uncertain. 2. I already paid a huge lump of tax, called stamp duty, as the price of my choice to buy a house. 3. Generally, if I spend money which has already been subject to income tax then why should I pay tax again on the assets? Surely, if I pay according to my income then I should not be taxed for not being feckless in its disposal? There are a lot of people with no mortgages, with healthy pensions and with substantial savings. These people are generally of the same vintage and social class as those who are in power and those highest up in the Civil Service. Let’s hope that policy isn’t being disproportionately influenced by this group of voters. “A 6pc+ yield today on government bonds will prove a bargain, as long as the Government digs the Exchequer deficit out of its hole. ” Not sure how that is intended to be interpreted, my interpretation is: “As long as the borrower can pay back it is a brilliant deal for the lender”. Impossible to argue with that 🙂 The question for any potential investor is (& has been): Will/can the Government dig the Exchequer out of its hole? Strong Irish auction – 2014 & 2018 bonds – b/c of 5.1 and 2.9 times on them (500m and 10bn issued), yields 4.77% and 6.02%, about 22bps lower than last nights close. Bonds continuing to rally. Bunds spread in by 21bps so far. 1bn issue not 10bn obviously! @ Enda F “Still I am sure people will line up and slate him for having something positive to say.” Maybe. It’s interesting to observe criticism of irrationality when it’s the wrong irrationality. While analysts sometimes warn about an individual share which may have a high P/E ratio, the general pattern is to egg on a rising market. It would of course be a brave insider who would say sell when the bonus seeking herd is stampeding in the opposite direction. @ Mark G Bond rates of Eurozone members converged as the euro launch approached in 1999 but that is now viewed as having been irrational as the risk of defaulting differed from one country to another. In recent times German, US and UK bond yields have fallen because of investors seeking safety; when the price of an existing fixed coupon bond rises in response to market demand, its yield falls (the interest paid is now related to an above par price). Rates on bonds such as Ireland’s include the price of default risk and the cost of insurance against it. When existing Irish bonds are sold in the market and the price of the bond falls, the yield rises. Regulators mandate the level of highly rated bonds that have to be held, making demand for risky bonds dependent on a high premium. @Zhou I wouldnt worry too much about the short term intro of a property tax. Other forms of tax increase though I think are a certainty. I have yet to see any real fiscal expectations of what income a property tax could expect to generate. Any of the potential models (say sq footage/ bedroom number / rental equivalent value ) all have massive potential for inequity given the recent market crash. I think it is far more reasonable to expect an increase in Income tax rates and in addition a change to standard rate band entry points and thresholds. This can and will be implemented immediately upon legislative intro and are a “fairer” way to impose the pain…… @ RO’F: “Personally I would much prefer to see that money invested in Ireland, creating jobs here, …” That would be what class of job? Manual labour? You cannot ‘create’ jobs anymore. You first must re-absorb those who were working and lost their job. You then must have some plan to absorb the new entrants (nett of the leavers). These are impossible tasks. It presumes a fantastic rate of re-growth. Those days are over and will never return. We need a new economic model. @ Mark G: ” – It would seem that currently a ten year irish govt bond represents a fantastic return for investors?” That would be the gamblers who lever up ***/1! They need +7%. @ DE: “if we can get our deficits under control.” Can’t be done – not using the Bus-as-Usual model anyway. If, and only if, we halt any further borrowing – that is we live on our real income, will we exit this catastrophic mess. @JtheO: Nice idea about the bet. The math puts the odds in favour of McWilliams, Kelly and Gurdiev. We would need a +7% annual increase in aggregate economic activity, for 10 years, to clear the debt load. And this would assume no further extension of existing credit lines. In the meantime, the energy-cost of energy continues its inexorable climb! Its not the price of bonds that keeps me awake at night! Your staring fixedly in the wrong direction lads! Brian P Thanks Michael – I guess my question really is can a circa 400Bp move be attributed to the points you raise? Or is it possible very large private players have the size to manipulate movements to ensure a continued /growing return. The cost of servicing the national debt as a percentage of tax revenue seems to be a better measure than the debt as a percentage of GDP/GNP. Ireland is in a far stronger financial position than say Japan. The cost of servicing the Japanese national debt is 43% of tax revenue yet few are speculating about a Japanese default. In Ireland’s case the cost of servicing our national debt is far far lower than 43% of tax revenue. Zhou, I think you decided the debate with your last para. Policy will be decided by a cohort of over 50s in the Civil Service who have DB pensions, some equity in their homes and some cash in the bank after 10 good years. It will be rubberstamped by a Cabinet with even more gold plated pensions. How many state pensions does Michael Martin have-TD, Minister & Teacher. Does he feel your pain? @Mark G I think you are right. I cannot see this Government introducing a property tax having put out the feelers earlier in the year and felt the chill winds. Even the water-rates/poll-tax initiative looks close to being shelved. Dubliners would be disproportionately hit and FG and FF have problems in the city. I still worry though because there seems to be some sort of consensus amongst people of influence that a property tax is the way to go. Garrett FitzGerald has long advocated it and Bertie Ahern now says the abolition of RPT is one of his greatest regrets. @zhou 1. I am already labouring under, and honouring, a large private debt incurred as a result of a bubble that came about through the State failing in its duty to regulate. This tax will be disproportionately hard on those who are struggling the most at the moment and whose futures are most uncertain. A property tax is a feature of almost every developed countries tax base, why is Ireland different yet again? 2. I already paid a huge lump of tax, called stamp duty, as the price of my choice to buy a house. As I have said before, you pay VRT on a car, you pay an annual motor tax and you pay fuel duties every time you want to drive the car. The idea that you can only tax something once is completely incorrect. 3. Generally, if I spend money which has already been subject to income tax then why should I pay tax again on the assets? Surely, if I pay according to my income then I should not be taxed for not being feckless in its disposal? You pay DIRT tax on savings income even though you are being entirely sensible with your money plus you pay VAT on almost everything you buy. At the end of the day all tax comes from income property tax would be no different. @JohntheO “but their analyses are very similar to those that I’ve posted for many months on this site, to general derision.” Eh, Ciaran O’Hagan’s article is about bond yields, the deficit, banks. I don’t see any post from you that covers those issues. Perhaps you could point one out to me? In fact, Mr. O’Hagan’s article is similar enough to many postings on here. Reduce the deficit, cap the exposure to the banks, get a multi-year plan for the budget and then get on with rebuilding the economy. I don’t see anything controversial in that. What is interesting is that the easy gains identified have been floating around discussion fora for a number of years. Removing tax relief on private pensions while the country can’t afford it is simple to implement and an immediate gain. A flat-rate property tax, banded by house size and by area, should also be relatively simple and an immediate and stable source of funding. However, not a month goes by without the government leaking that there’ll be no change to this or no change to that. They have spent the last year closing doors to fund raising. We were told in the last budget that we’d see the new social insurance tax in the first half of this year; that it would be fair and broad; that everyone would pay something. We haven’t heard a sniff of it (or any other policy) since the Dail went on its teacher’s holidays. We will, no doubt, be told that it is too late to introduce it now. And another soft goal is conceded by a butter-fingered government. The point about a plan is that it is something that gives confidence. Saying you will introduce water charges, property tax, new social insurance is fine. But you need to spell out the when and the how much. This is not just for international bond markets, it is for domestic consumption. The recovery in economic activity isn’t going to happen until some certainty is restored. @Hog I agree with much of that. The time for political games is over. The Government need to give some clarity for the sake of everyone. @Zhou “1. I am already labouring under, and honouring, a large private debt incurred as a result of a bubble that came about through the State failing in its duty to regulate.” Maybe slightly off your point here but is it the “State failing in its duty to regulate” or financial institutions ignoring or contravening regulations. The distinction is important in the sense of assigning blame. If I break the law it is not the States fault for failing to regulate. On the other hand where I see the culpability is in failing to penalise those institutions – by, for example, not allowing them to collapse when they are exposed as insolvent. Other than that your points about property tax are OK – especially the stamp duty one. @ Cormac Lucey “If Ireland’s credit is “for now as safe as houses” why is an Irish 10-year bond trading at a 30% discount to its German equivalent. Market prices imply a 100% probability of a 30% haircut / a 30% probability of a 100% haircut / anywhere inbetween.” I don’t think it is as simple as that. There is currently a large Risk Aversion in the market. That means the risk itself carries a price. Of course 100% probability of a 30% haircut implies no risk and so would indeed be valued at 30%. But a 30% probability of 100% haircut would be valued at much higher than 30% simply because there is an uncertainty about the outcome. Unfortunately there is no way of actually isolating the cost of risk, unless Paddy Power were to run a book. But it may be that say a 20% risk of a 50% haicut is valued at 30% and not at 10% which would be the case in a risk neutral market. I was getting real comfort from the article until I reached that expression “as safe as houses” which sent a chill through me. @AMcGrath Ultimately, I borrowed the money so I am responsible. That is ok. I just think it is perverse to now be taxed on my debt exposure. @Dreaded Estate “You pay DIRT tax on savings income even though you are being entirely sensible with your money plus you pay VAT on almost everything you buy. At the end of the day all tax comes from income property tax would be no different.” Where is the income from property/negative equity? It is an outgoing. One can always sell one’s car or leave it off the road. One cannot sell one’s house if one cannot redeem the mortgage. Similarly one needs somewhere to sleep. Motor tax is notionally to pay for the roads. The equivalent is domestic rates, not property tax. Mark G One thing that bond investors like to do is trade the yield differentials between bonds of a similar type. So, within the out-of-favour group of Euro Area sovereign bonds there will have been many trades and a great deal of analysis of the relative (de)merits of the sovereign borrowers. These spread trades on the movements in the relative yields on sovereign debt will have included Irish debt versus that of countries like Spain, Italy, Portugal (but now much rarer, Greece). The two extremes are represented by Spain and Ireland, the former having povided stimulus measures equivalent to 2.3% of GDP- the highest in the Euro Area. Ireland’s diametrically opposite policy is well-known. Both had similar property-led collapses. The Spanish economy has grown by a modest 0.3% in H1 this year. But this GDP growth masks an upsurge in the domestic economy. GNP has grown by 3.6%, the fastest of all the Euro Area economies. By contrast, Ireland’s GNP continues to contract. The importance of this measure relates to the tax take, which is overwhelmingly based on GNP in both cases. Ireland’s taxation revenues slumped in 2009 and continue to contract this year. By contrast, Spanish taxation revenues have soared, that the deficit has almost halved in the first 7 months of this year. Yes, that’s the deficit falling after government spending increased. http://www.progressive-economy.ie/2010/09/lessons-from-abroad.html Unsurprisingly, Spain is now viewed as a much better credit than Ireland, having begun with very similar yields. Yesterday, Spanish 10yr yields were more than 2% below Irish yields. Bond investors are above all concerned with cashflows. Spanish and Irish government cashflows currently reflect the very different prior impact of government actions on activity and taxes. And their yields reflect the level of investors’ current concerns. @zhou You are not being taxed on your debt exposure. You are being taxed on the site value of the land you bought. Or on the services provided to you by the local council. Or whatever basis they have. I would think that those who have bought and paid for their houses have a similar thin case – they have already sunk their costs in, living on reduced means while they did. Perhaps paying 14% interest rates in the ‘eighties (not that it is relevant). Perhaps overpaying their mortgages to pay it off quicker. Perhaps working in places or jobs they would rather not to do so. And now that they have paid off their mortgages, they get no tax relief on their interest payments… @ Dreaded I would be interested to see an example of a RPT intro following a property crash similar to the one we are experiencing?? The time to introduce same is in periods of stability and recongnised / quantifiable values. RPTs have their place but an important principal of taxation burden is that we are by and large all in the same tax boat and in my humble view it would be impossible to impose any kind of workable RPT on us, as a collective, in the current climate. ( BTW THE IRONY OF MY STATEMENTS VIS COLLECTIVE RESPONSIBILITY ETC IS NOT LOST ON ME GIVEN THE TIMES WE LIVE IN…..) @Mark G “RPTs have their place but an important principal of taxation burden is that we are by and large all in the same tax boat and in my humble view it would be impossible to impose any kind of workable RPT on us” Why wouldn’t we all be in the same boat? @ EFE “Ireland is in a far stronger financial position than say Japan.” Japan’s net national debt is a lot less scary than the gross level. The key difference with Ireland is that most of the debt is held domestically and the spread over the benchmark rate is small. In common with Greece, most of Ireland’s debt is held overseas. In 2009, about 82% of the total. Ireland paying 20% of fragile tax revenues in servicing by 2013/14 is quite a burden. As I said on the blog last week, in for example 1991, all the interest burden was offset by EU receipts @ 6.2% of GDP. In 2013, our 40-year EU bonanza will end and we will be net contributors. @ Dreaded Their is no property boat. It was boarded by pirates and it has sunk. Hogan “Removing tax relief on private pensions while the country can’t afford it is simple to implement and an immediate gain. ” I think your proposal would be more accuratly rewritten as follows “increasing the tax burden on middle-upper income (mostly) private sector earners to copperfasten the largely unfunded pensions of the higher earning public sector, which the country can’t afford. If you think the political parties would baulk at a property tax, wait until you see the reaction to this proposal in the leafy suburbs. Its classic Grauniad reading stuff. I think some of the comments on this thread illustrative why are yields are so high. – No property tax – No reform of pension benefits These are probably the 2 biggest areas where the government can raise revenue over the next few years and most think they are unworkable. Personally I think we will have to introduce every revenue raising measure out there, implement everything in the Board Snip report, reform PS pensions in the long-term and think of a few other things to close the €20bn deficit. @YM/HM RPT is not a transaction tax. It is an tax on assets. Accordingly, it stands to reason that it should be a tax on what one actually owns, i.e., the net value of the asset, rather than the value of the transaction. Transaction taxes, such as stamp duty, can be built into one’s calculation prior to undertaking the transaction. Adding a tax to people being crippled by mortgages could lead to more default, more problems for banks, more work for revenue, more evasion, more inequality and a perception of generational arbitrage. I am not against rates per se. However, I do not think it should be moneys taken in form rates should be fungible. They should be applied by accountable local government, whether elected nationally or locally. this might of course cause problems for our country cousins. I am also not against water charges if they are effective in reducing water wastage, i.e. are linked to consumption and a proper integrated metering system and are applied solely towards improving the water supply infrastructure. @ Dreaded RPT take would stuggle to hit €100m margin on collection annually. Drop in the ocean BTW – I am not against increasing income tax if needs be. I am happy to pay tax according to my ability to do so. @ zhou_enlai Michael O’Leary not only does not have to pay tax on his big house in Mullingar but he gets a tax credit for its upkeep. The OECD said in 2008 that Ireland’s house tax system was among the most favourable in the OECD and tax breaks fuel house prices. It was the only OECD country that allowed households tax deductions for mortgage interest payments while not taxing property values or capital gains on a main residance. @tull Wait until you see the scramble for the PS vote… From the Irish Times; “Analysts welcomed the auction results. ” From a market point of view, this is seen as a stunning good result in terms of demand,” said Alan McQuaid, chief economist at Bloxham Stockbrokers. “Clearly we’re paying higher interest rates. You can’t go on paying a premium every single month for an auction. But the NTMA is well funded into next year. We’re comfortable in that position. ” Citigroup’s chief economist Willem Buiter said today’s bond auction today was “great” for investors and “horrible” for taxpayers and the Government. “From a technical point it was highly successful, over five times oversubscribed,” he said.” Mr. Buiter get’s this right. Any taxpayer should not view the oversubscription as anything but overpaying for the debt. Thank goodness it is only €1,500,000,000. @MH I think the danger of a property bubble has come and gone for the moment! The issue is how do we equitably raise additional taxes in a crisis. Many people want some kind of a wealth tax because they believe that better off people don’t pay tax. The truth would appear to be that it is the worse off who rightly pay very little tax and get decent benefits and supports. (I suspect that tax evasion has been reduced massively since the 1980s and information technology ensures that it continues to decrease.) In any event, those that have some money left are holding onto their wedge so the state needs to get at it. However, at the same time, the private debt of the country is huge and is a massive fetter on recovery. Presumably it is better to put the additional taxes on those who have net assets and net wealth rather than those who have net debt, because (i) those with net assets can better afford it, (ii) those with net debts need to service those debts to keep our banks afloat, and (iii) additional taxes on those who are using all their net income already will come straight out of the economy. Obviously the difference between net income and net debt is tricky. @ Cormac Yes a big typo. Please read Bertie Ahern for Brian Cowen (who of course wasn’t elected taoiseach until 2008). And between some form of default and deep, deep austerity, the two alternatives you outline, there is muddle through, with many shades of grey. Policies can be more or less well designed and well executed. Many governments around the world (more so in Europe, Japan) are playing a game of waiting and “roll off”, let the toxic problems die of their own accord. It may be a passive strategy at its base, but it still needs good management. . @ John T O “if the government is orchestrating them”. No I can assure you not! But then I’m not sure the present government would have written such an article quite this way. If I had something altogether bad to say, I maybe wouldn’t have written an article, given the day job. . @ hoganmahew “why aren’t buyers, eh, filling their boots?” Well some have, given results of auction. It ll need more good news to take yet more buyers out of the woodwork. Last night Brian Lenihan promised us a pre-budget outlook for October, two months ahead of the budget in December as planned. That was an advance. The overbidding by the way was the strongest we ever saw on an 10-year Irish bond, almost 50c (and very strong compared to other government auctions). Overbidding is the difference between the average price paid at auction and the level of the secondary market prior to the close of the auction. So in this case, you had to pay almost 50c more to get the bonds at auction than prior to the auction. Overbidding is the single best indicator of performance. . @ Mark G “is it possible very large private players have the size” No this is pure fantasy. It is sometimes evoked in the press and by politicians wanting to curry sympathy (I haven’t seen any politicians in Ireland do this btw, probably because the financial culture is a bit more elevated than in some parts of Europe). Yield spreads *over a few weeks or more*move primarily as a function of fundamentals, and their perception. The supply of bonds, and the demand for them, plays a role. But I think they are given too much credit. So we see that Greece withdraw from supply, and the ECB bought bonds, and yet the supply demand effect was ephemeral. Unfortunately many of the bigger, more dynamic funds have been scared away by the politicians and regulators. Government bond markets have thus become far less liquid over the past two years. And that has a certain cost for the Europe’s taxpayers. Markets actually do serve a very real economic purpose, I’d argue. They perform it all the better when they are greased by flow. . I don’t agree btw that a property tax is that hard to introduce. In many countries in Europe, some of taxation works by self assessment. Just about everybody can assess the number of rooms or footage of their property. And you live in terror of being caught out. @MH What tax relief does Michael O’Leary get for the “upkeep” of his house in Mullingar? @Mark G Where are you getting the €100m from? The commission on taxation thought we would be able to raise in excess of €1bn from a RPT. http://www.commissionontaxation.ie/downloads/Commission%20on%20Taxation%20Report%202009.pdf Lots of big CSO figures out a few mins ago. I expect we’ll have some threads on them later. Generally abysmal compared with pre-2007, but much better than was forecast. Briefly: (1) From the QNHS for Q2, the number in employment fell by just 7.6k in Q2, the best since 2007. Compares with 14.6k fall in Q1 and 35.9k fall in 2009 Q2. Clearly, the FAS prediction that employment would fall by 58k between 2009 Q4 and 2010 Q4 won’t happen. As more up-to-date figures for redundancies (published a fortnight ago) have shown a fall in the number of redundancies in July and August, it looks like the number in employment is close to stabilising. (2) Unemployment rate revised down to 13.2%. (3) Net emigration in year to April at 34.5k. ESRI forecast a couple of months ago that it would be 70k in that period. I rubbished that forecast on here at the time. I said 40k. So, I was almost correct but over-pessimistic. Perhaps someone from ESRI will post on here why their predictions have greatly over-stated net emigration 2 years running. Last year they forecast 50k, and it turned out to be 7.8k. This year they forecast 70k and it turned out to be 34.5k. (4) Clear evidence from the QNHS for Q1 and Q2 that the outflow is diminishing. @Ciaran This 50c overbid. Are you sure you are comparing like with like? 2018 is not a 10 year bond. @ Dreaded RPT Income quatum : 4m population of ireland 1/4 own homes = 1m I then took 3 from the top and let carol choose the other 2. = €100m QED and i didnt charge what the commission on taxation did. Lets see who’ll be closer to the bullseye? The dance on a rope, high up in the air, between ‘austerity measures’ and ‘social peace’ is performed to the tune of market propaganda, EU politics and a war of words. We are bombarded with the notion of importance to safe the banks, all banks, at all cost. Different economic schools compete for the public ear and one has to make up his mind who talks sense. There is no universal truth in any of these different schools of economics. Banksters on the international stage continue to play their game, in fact, they never stopped! I consider Basel III as too little too late and most definitely not enough. Of course, this is a war where Ireland has little or no troops on the battlefield, other than the corpses hidden in Anglo Irish Bank and a decade of fraud and scam hidden in the accounts and off shore activities of all banks. The ex eastern german secret service, Staatssicherheit, known as STASI, created a monster with approximately 170,000 Informers, and 100,000 full time ministry workers in 1988, one year before the wall came down. Three years after that historic event, the STASI files were opened to the public by a sudden federal republic order in 1992. The FF lead Ireland created a different monster of servants in this country. Their purpose was not to spy on the people, but did function as a net of power maintaining bureaucrats, a politically motivated net where nepotism and party interests ruled. The reason I say this, is not to directly compare the Irish politics with STASU methods, but to highlight that Laws can be changed, and transparency can be achieved. Having said that, the Irish Constitution is the main reason for apologists in the legal eagles fraction why we do not have whistle blower protection in Ireland for example. The demand of the Irish people for transparency into the matters of our banks was answered with behind closed doors investigations, a PR stunt of a Raid in Anglo Irish offices in 02/2009 has revealed what? To date, zero results. The hopelessly understaffed office of the director of corporate enforcement was given the task to dig through millions of documents. The results? Zero. Dirty games? Who would not be forgiven to think that crooks and special interests are playing dirty games in the Light of this secrecy and insider business. I am one of those who think it is time to open the files to the public! I believe we need a public inquiry into these matter, it is long overdue…. @ BWII Ciaran is correct (but you’re right, he meant the 8yr bond) Closing price yesterday = 89.35 Price at 10am (when bidding closed) = 89.95 Average price at auction = 90.485 Average price now = 90.68 ie people were willing to pay a good bit more than secondary market price for the bonds, and are willing to pay more again in the secondary market after the auction. Tis good news (albeit yields are still very high relative to last week). Why should taxes be raised equitably in a crisis when the gains were not equitably shared in the upturn? Does the current situation require government actions? If government actions are needed, what actions does it need to take? If the necessary actions are unpopular thus causing risk of losing an election, will the government do them? @Mark G You are only assuming €100 per household. Much of the talk has been of something closer to €1,000 per household. Wow! What a success!!Great day for Ireland! We’ve managed to load even more expensive debt onto the load that’s already there! 6.5% – fantastic result!No wonder there is an oversubscription -isn’t it great! Well done NTMA/Dept Finance/Bond experts/Ecnomiss of all shades/bankers/enihan/Taoiseach…….. Odd world when we celebrate borrowing 8 year money at a usurious rate of 6.02% We’re paying a higher rate of interest on 4year bond and 8 year bond respectively. No wonder the auction is over subscribed. The investors know that the government here will do whatever it takes to meet Anglo Irish liabilities and they know that the government will do whatever it takes to meet sovereign debt liabilities too. No wonder the auction has been over subscribed. Hence the enhanced demand for Irish debt! It’s a sure way bet – the institutions will earn a punitive rate of interest without any fear regarding the security of their loans. It’s like going in to Paddy Powers placing a bet and knowing that regardless of the result, you’l get your bet back with interest! Ciaran O’Hagan no doubt works for the same institution which loaned money to Anglo Bank and separately loans money to this State. Great news JTO only 7500 less people employed and we only lost 34500 people who departed. and we established a new benchmark of over 6% for borrowing this is great news or am I being delusional. With the release this morning from the CSO showing population estimates at April 2010, which show that our emigration is back to 1989 levels (in absolute levels) and we have had the lowest growth in population for 20 years so it seems that many folk will escape the consequences of the debt currently being accumulated. On a positive note, there was no decline in population overall though numbers in Dublin are down.Also although emigration is high it was only 200 people more than 2009 when 65,100 emigrated. On an even happier note we’re shagging each other into the record books with our birth rate and our death rate is still amongst the lowest in the world. http://www.cso.ie/releasespublications/documents/population/current/popmig.pdf @Michael Burke “The two extremes are represented by Spain and Ireland, the former having povided stimulus measures equivalent to 2.3% of GDP- the highest in the Euro Area. Ireland’s diametrically opposite policy is well-known. Both had similar property-led collapses. The Spanish economy has grown by a modest 0.3% in H1 this year. But this GDP growth masks an upsurge in the domestic economy. GNP has grown by 3.6%, the fastest of all the Euro Area economies. By contrast, Ireland’s GNP continues to contract.” This is highly relevent to the debate going on now. Given the call by the Governor for “convincing” additional cuts (I take this to mean savage) what effect will it have on GNP if they cut/tax 4b+ in the budget. @ Michael Burke We are running a budget deficit of approx. 20% of GDP this year. Is that not enough of a stimulus? It’s a tad mischievous of Ciaran, perhaps anticipating the sprint of government representatives to the nearest microphone with quotes from his article, to close with the importance of pension reform and property tax — 2 things that the government has put off the table. @ jagdip Does that mean NCB’s 2007 projection of 5.3 million people by 2020 and 65,000 housing units per year until then will need to be revised? http://www.finfacts.ie/irelandbusinessnews/publish/article_10005281.shtml @Zhou Again, the “justice” question is worth considering when you consider your feeling that there should be an exemption from a property tax for people in negative equity. As a country we’re in a situation where a huge property bubble has caused enormous and long lasting social and financial damage. Buyers who bought in the bubble were as responsible for the bubble as anyone else. If we have to introduce a property tax to patch one of the financial holes created by the bubble, it would be unjust to exempt people in negative equity from this tax. The tax, if introduced, should be levied on current value of the house, sq.m., or some objective feature of the house and should not exempt the people who contributed to the bubble by paying daft prices for houses. What would be the logic? To make people who didn’t cause the bubble pay for it while protecting those tho did? That screams injustice…although that wouldn’t be new for taxes in Ireland. As someone who didn’t buy at the peak and who warned people off buying at the peak I could put together an equal argument to make the property tax apply to the value paid for the house or the current value, whichever is higher, so that the contribution to solving the mess is borne most by people who contributed to the mess. It would hit the wealthy from the bubble period too, since they often bought fancy houses at high prices during the boom. Meantime, I’d second the point on pension contributions. The actual aim of such a measure is to make people with private pensions suffer while continuing to maintain the funding for the gold plated pensions in the public sector but without the tax being so directly felt that it causes uproar, which income tax changes might cause. If private pensions are going to get hit – which this would do – then the funding situation of public sector pensions should be at least equally hit. I can’t see that playing so well with the Beggs of the world. Oh, and that’s without considering the more fundamental point that a tax on pension contributions is a punitive taxation measure to discourage people from doing something that the state thinks everyone should be doing. Dumb and shortsighted policy when we really need clever and far-seeing. On the bond auction, and the specifics of the O’Hagan article, thank heavens we can still borrow money. It just worries me that we don’t have much of a plan for stopping doing that. @JtO Far be it from me to take on Ireland’s most feared statistician, but might I query your statement ‘Unemployment rate revised down to 13.2%.’ I quote from your favourite economists at your favourite impartial, utterly unbiased (who serves no vested interest), stockbroker, Davy: “The number of unemployed increased…in Q2 over Q1, driving the unemployment rate up from 12.9% to 13.2%” Again, I hate to quibble, – and I’ll hazard a guess it’s down to somebody using x11 instead of x12 seasonal adjustment fcators – but I merely draw attention to the use of the words ‘Up’ and ‘Down’, both applied to the same event. Curious. @zhou_enlai It was the case that owners of houses of historic or architectural interest were granted tax relief on the upkeep of the house provided the property was open to the public for at least 60 days of the year. This led to curious situations where grand houses were opened at xmas or New Year when the footfall would be light to nonexistent. The assessment process usually involved an architect from the OPW checking over the property and validating any written records, etc. I looked at buying one such house and lands 20 years ago. I was dealing with an Irish merchant bank at the time. One part of the property was pushing up the price due to the ‘promise’ of development. To cut a long story short, the bank ‘helpfully’ informed another of its clients of my financial strength and the client outbid me. That’s cronyism at its best. @Eoin “ie people were willing to pay a good bit more than secondary market price for the bonds, and are willing to pay more again in the secondary market after the auction. Tis good news (albeit yields are still very high relative to last week).” Now, who could it be who was rubbished (not by you I hasten to add) for saying such a thing yesterday…? With the backstop of the EFSF (and more importantly the precedent of it), Irish, Greek, Portugese bonds are cheap. @Zhou In olden days property tax was a tax on imputed rents. An owner occupier avoids paying rent so, says the theory, has an imputed income. I think it was taxed under Schedule A (at least in the UK). Defined in this way, property tax is an explicit income tax. You have to be an economist to get your head around this. @Hugh Sheehy “Buyers who bought in the bubble were as responsible for the bubble as anyone else.” Buyers who bought in the bubble are paying for their responsibility by repaying their debt. They are at the bottom of the pyramid scheme. It is interesting that you feel the need to keep kicking them. Some people always want to be kicking somebody else though. Like I said, I am happy to pay higher income tax and I am happy to pay domestic rates if they go towards the provision of services. @The Alchemist I am with you now. I imagine your banker’s appalling behaviour gave you an insight as to how to deal with bankers from then on. (It could have been worse – he might have known the vendor and had them puff up the price to your max.) podubhlain, The ESRI uses a 1yr multiplier of 1.3, which implies a reduction in GNP of €5.2bn. It seems likely, though, that at least €1bn of the cuts will come once more from the capital budget. Benetrix & Lane estimate the multi-year multiplier of govt. investment at 4, implying that that cut alone will depres activity by €4bn, and, say, the remaining €3bn at 1.3 educes GNP by at least €8.9bn. Both of these estimates are based on long-run averages. When the output gap is large, or interest rates are low or credit access is constrained, these multipliers tend to rise. All 3 conditions apply currently John Mul unfortunately the govt. is simply sawing off the branch it is sitting on. Deficits do not equal stimulus. @ Simpleton Ref UK RPT LOL – “I think it was taxed under Schedule A (at least in the UK). Defined in this way, property tax is an explicit income tax. You have to be an economist to get your head around this” Could you explain this for all the non economists? Thanks. @simpleton I can see some logic in that. However, to the extent that the mortgage repayment exceeds the rent and the mortgage repayment is not giving any equity (because of negative equity) the value of the notional rental income is reduced as it is inextricably linked to an outgoing which gives no benefit. Therefore, if I am paying €2500 pm mortgage and rent for the same property would be €1500 pm and I am in negative equity then I get a net benefit of €500 pm rental income for owning my house. In any event, whatever the pros and cons are, if it comes to pass there will be visceral anger amongst those being taxed on negative equity [i.e. your level of ownership in the property is negative – there is no positive equity]. It will be hard to see it as anything other than finishing off the job of turning the younger generations into debt slaves for the benefit of their elders. @Zhou As you say, there are complications. And it was precisely those sorts of complications – not least the political unpopularity – that prompted the abandonment of this approach to property taxation. We know that taxes have to rise. Probably quite a lot. Are we capable as a nation of having a sensible debate over which ones? If you follow Simpleton’s suggestion to its logical conclusion, you could give a tax credit for mortgage interest which can be offset against property tax. This would benefit younger homeowners early in the life cycle of property ownership. As the mortgage aged, this would dimish. The property tax would then be paid mostly by the older cohorts in society, mostly in the leafy suburbs of Dublin & Cork. These include the constituencies of the the future leaders of FF plus FG and the current leader of Labour. The redoubtable Richard Boyd Barrett, champion of the workers lives in Dun Laoghaire. I cannot see the smoke salmon socialists of Sandycove voting for him if he proposes a property tax. A FF backbencher of my acquaintance said to me that the the one guarantee of him losing his seat would be a property tax. @ zhou_enlai “What tax relief does Michael O’Leary get for the ‘upkeep’ of his house in Mullingar?” Section 482 of the 1997 Taxes Consolidation Act @ zhou_enlai “What tax relief does Michael O’Leary get for the ‘upkeep’ of his house in Mullingar?” Section 482 of the 1997 Taxes Consolidation Act Listed here. @Tull I don’t know how mortgage interest relief/offset against imputed rent works in other jurisdictions, but I do know that the leafy suburbs of New York, New Jersey and the rest of N.America all pay high or very high property taxes without social revolution. My 85 year old father, on a small pension, pays $7000 a year on a 2 bedroom house in a small town in the middle of nowhere. Sooner or later the challenge we face is whether we grow up or not; do we have the maturity to govern ourselves? Our leaders have to point out a few simple truths: everyone has to sacrifice. Proposals that amount to recommending soemone else’s income be sacrificed do not count. @Simpleton, Fat chance of that. Pandering to interest groups is the everyday norm in every democracy. There is a great line in Shrek 1. I think Lord Farquar is addressing his knights “Some of you may die but its a price I am willing to pay” @MH Thanks. That is a policy which is unrelated to people’s wealth and house values. If the benefits (pubic access to grand houses and the maintenance of same) do not justify the cost (relief on maintenance costs) then I suggest it be scrapped. It is quite beside the point of a property tax imho. @Zhou I don’t feel the need to kick anyone and never used any such terminology. One of my constant points is that preferential “kicking” has been the way in Ireland for too long. If there’s going to be kicking – as the current fiscal situation seems to require – then it should be fair and equitable, not favoritism and special interests. Just as you can put together an argument for one exemption, I could put together an argument for a different one. No exemptions, no favoritism, no special schemes, etc., would be a better basis on which to operate a Republic. Unfortunately for people who bought at the peak, this indeed means that (IMHO) exemptions for negative equity should not be available for property tax. The property tax should operate (as mentioned above) as a tax on imputed rent. Mortgage interest relief already exists for those who financed their house with debt. Why should any additional relief apply? If you sell the house and take the capital loss then you may well be able to offset that loss against income tax as you would with any investment, but otherwise why the additional relief – other than not wanting to pay tax, a feeling everyone shares? As for your point that property taxation is “finishing off the job of turning the younger generations into debt slaves for the benefit of their elders”, I agree with your feeling, but preferentially loading the future property tax burden onto those who didn’t buy at the peak isn’t the right solution, or a just one. @simpleton I think we are capable of having a sensible debate. However, the DoF will, as ever, reserve the right to treat everything as fungible thereby robbing taxes of their political legtimacy and causing increased cynicism, selfishness and non-cooperation amongst tax-payers. treating everything as fungible will also reduce the incentives created by tax to influence behaviour. Why reduce water wastage or put pressure on your local authority to do so if you will still pay the same amount? Why hold your local authority accountable for how it uses domestic rates if savings will not be passed on? @Hugh Sheehy We are going around in circles. An argument can be made for any exception, but not all arguments are equal. Obviously everybody is biased in their own favour. However, many are willing to contribute more in an equitable fashion. Incresing income tax, widening the bands, and increasing inheritance tax appears to be the most equitable solution available at the moment imho. No doubt your view differs. @Zhou The debate has to be open, honest and informed. Your call for increased income tax is all three but does need probing. Any call to raise income tax needs to talk about the large minority of (lower to middle paid) taxpayers who don’t pay any tax at all. It also needs to confront arithmetic: to raise tax in a meaningful way you need to tak those with the incomes: that’s the middle classes. Raising the the top rate won’t do it. @simpleton I agree. The tax bands will have to be widened downwards or the levy will have to be increased. That is the mathematics of the situation. It will not be popular. podubhlain: “Great news JTO only 7500 less people employed and we only lost 34500 people who departed. and we established a new benchmark of over 6% for borrowing” You forgot to mention that OAPs are now >0.5m for the first time ever and that “natural increase” is at a high rate due to the 70/80s baby booms having kids in their 30s. zhou – to frame this as a tax on ownership is misplaced. In North America (where Property Tax is generally levied by local authorities) renters often do not hold councillors to account for increases because they pay that tax once removed. As for a tax on debt – it is not obligatory to borrow for the purchase of anything. Maybe a perception that debt could be taxed would be an interesting way to discourage overleverage by new entrants to the market. @Mark Dowling The difference in the USA you don’t pay property tax up front -stamp duty. Anyone who bought a house in the last few years has already paid up front property tax for a good number of years. Factor in all of the additional taxes buyers paid and the disconnect with the USA becomes apparent. @zhou “I agree. The tax bands will have to be widened downwards or the levy will have to be increased. That is the mathematics of the situation. It will not be popular.” I agree with you that tax bands will have to be widened, levies increased and tax credits removed or greatly reduced. But I think we will need to do that and introduce a property tax, a water tax and many other new taxes as well as cutting pensions, pay, services and public sector numbers. I don’t see any of these either or choices but of ‘and’ & ‘and’ again choices, if that makes sense. @simpleton You are mostly correct. I was referring to whether or not the figure for the unemployment rate in May had been revised compared to previous estimates for May, not whether it changed between February and May (ie between Q1 and Q2). The original figure for the May unemployment rate was 13.7%. I remembered that as Karl Whelan opened a thread on it back in early June, and I’d posted there. The figure has now been revised down to 13.2%. But, what I forgot in my haste this morning, was that the QNHS for Q1 was also published after Karl Whelan’s thread, a couple of weeks later. It was on the basis of that one that the May figure was revised down to 13.2%. Today’s QNHS leaves it still at 13.2% @JtO Thank you for your graciousness under fire. I unreservedly withdraw the sarcasm. I have made many a similar (and worse) error. @Zhou MH To give Micko Leary his due – I believe that he pays his ‘personal’ taxes IN Ireland. @C O’H Useful stuff as a non expert – today’s look v. good value from external perspective …….. on property tax – self-assessment works for Revenue in othter areas so why not here ……….. ? [off thread why are Anglo-Irish and INBS deposit rates still listed as so much higher than Credit Suisse etc etc ……? @Dreaded Estate There are always choices and decisions to be made. @zhou There are always choices but I think we are now in a place where the choice is to introduce a property tax now or later. @Ciaran Just as economists who represented the banks were accused of egging on the property market in the interests of their employers, doesn’t your position with SG create confusion as to whose side you’re on ? Us (Irish taxpayers) or them (I presume SG is buying the bonds and therefore pleased that the yields are up, but urging us to cut back so there’s no threat of default). I respect your integrity and contributions, but isn’t there a conflict here similar to the bank economists during the bubble? Michael O’ Leary could be a lot more agressive in his tax dealings in Ireland – at the very minimum he pays a good wedge of income tax on his salary and CGT on his various share sales given that he is Mullingar tax resident. @Dreaded & Zhou Back on the RPT isssue – there has been some discussion that a credit system could operate for those who had paid stamp duty on a PPR within a certain timeframe of intro of RPT. ie your RPT charge could be discounted or reduced by the amount of SD paid. @Zhou. Again the negative characterization of a post disagreeing with you…tsk tsk. There was no going around in circles. You pitched an idea for a special treatment exemption to property tax for people in negative equity, which is essentially the same as asking for income tax exemptions for people in negative equity. I opposed such special treatments and sectional exemptions, and that one in particular, and offered an alternative justification for an alternative exemption. Instead of a subsidy for the excessively borrowed, I offered a justification for a subsidy of the prudent. That’s not a circle, although it may be two ends of a line. As for bias, my bias is that Ireland has operated with special treatments and exemptions – and not just on taxation – to the point that it’s all politics is about in Ireland without anyone shouting “Stop”. We have trebly progressive income taxation in Ireland, subsidies and protection for numberless interest groups, nepotism, cronyism, etc.,etc.,etc. We’re very far from being a Republic of equal rights. That’s my bias. @Dreaded Estate. I’m inclined to agree with your concern that we’ll be faced with “and” & “and” instead of “either” & “or” when it comes to extra taxes, but perhaps I can add the fear that the word “except” will apply to too many special groups and people. The word “except” will also apply to cuts in spending, which cuts will apply to everyone …”except”…. @Sarah, Perhaps Ciaran should have spelt out the negative consequences of a default for a sovereign borrower running a primary deficit of around 10% of GDP. No cash to pay public sector wages & social welfare and no cash in the ATMs …for a while. I would also assume that if SG is buying bonds, it wants yields down from here but then so do we as taxpayers. @Sarah Carey Don’t we all have a conflict or a vested interest as regards Irish Sovereign Bonds? I expect people holding existing bonds want yields to tighten to increase the value of those existing bonds. We all know where Ciaran O’Hagan works so I guess we can factor that in if needs be. No doubt he has to factor it in all the time himself. In the meantime, I expect many people are grateful for COH’s contributions because they are cogent, well structured and easily understandable. @Hugh Sheehy I have your repeated point. @Zhou “Don’t we all have a conflict or a vested interest as regards Irish Sovereign Bonds? I expect people holding existing bonds want yields to tighten to increase the value of those existing bonds” Eh no………….I can state for the record that if I arrived home tonight to herself and stated that I had just got a great deal on a nice bit of Irish 8yr sovereign debt that I would be well and trully in need of medical assistance in short order……….and i am therefore quite proud to state I have no vested interest in this regard. @Mark G I think the problem is that those who are in negative equity are battling to get out of it as it is. Many want to move for employment or to raise a family. An added tax is going to seem all the more upsetting to them if it is a tax on the property that is causing long term damage to their prospects as things stand. Whereas I paid stamp duty, many of those who didn’t pay any stamp duty on newly built houses are in worse positions than me. People can blame whomsoever they want, but that set of homeowners in negative equity together with those who have lost their incomes are paying more financially than anbody else so far. @Mark G Do you not pay taxes that service the bonds? Will you not be paying such taxes in the future if you are living in Ireland? @ Zhao Negative – my income sources originate from some patents held in Malta via a lux SARL and are payable to me as non taxable royalties – in theory. In any event – My worldwide income would be taxable only in my country of residence but as I sail the seven seas on a magnificent sailboat I have no country of residence and dont propose to have one again. ……. As previously stated I have no vested interest in this regard. QED. I wish. @ David O’Donnell I wasn’t being negative about MO’L – – just illustrating the point about the property tax. During the boom, about 13% of local government income came from levies/charges on development. That source of course has dried up. Can someone explain the over-bidding referred to by Eoin and CO’H? Why are buyers prepared to pay a higher price at the NTMA auction than they would paid in the run-up to the auction? Eoin explains it well here. http://www.irisheconomy.ie/index.php/2010/09/20/governor-honohans-address-on-the-banks-and-the-budget/#comments @Zhou Again, in repeating your insistence that people in negative equity should be exempted from paying property taxes, thereby forcing others to pay more, you’re demonstrating that you have not got my repeated point about fairness and equity. Now I appreciate that being in negative equity or simply having lost money on a house bought at the peak is a terrible situation and that many many people are in it. That’s different from agreeing that other people should be forced to pay their taxes. Many people lost money for other reasons too, or invested in things where the value of the investment might be damaged by higher income or other taxes (like education, for instance). Even on the stamp duty question of double taxation, which has arisen before, I believe Dreaded Estate has frequently pointed out that similar double taxation is widespread and normal. You might feel that it would be immoral to charge property tax on a property where stamp duty had been paid, and you might well be right, but morality and taxation are odd companions at the best of times. It would be nice to make them regular companions. Perhaps we can agree on that much. @Zhou “Don’t we all have a conflict or a vested interest as regards Irish Sovereign Bonds? Em no. As taxpayers we want one thing and one thing only – low yields so we have to pay out less. Our interests are not aligned with bondholders. Sarah, bondholders would be more than happy to see low yields because it meant the public finances were in good shape and the banks were sorted. Sarah, I respectfully suggest that taxpayers interests are 100 pct aligned with bondholders. They both want lower yields & higher prices. It is people who don’t own our bonds that want higher yields . @ Sarah/Enda/Tull Bondholders interest are not alligned with taxpayers BEFORE they buy our bonds (higher the better for them). They are perfectly alligned AFTER they buy (lower yields indicates better credit). Eoin, they are not Irish bondholders. Before they buy. @Ciaran O’Hagan Since I agree with everything you wrote in your excellent article and with everything Donal O’Mahony wrote in his excellent article, and have long argued on here for the government to get its finger out and start putting forward a more positive message, I intended the “if the government is orchestrating them”, as a compliment to the government. But, obviously, as you wrote it off your own bat, I’ve given the government credit where none was due. I agree eoin but I also know plenty of investors who can’t/ won’t buy at 6% yields but would be back in for Irish debt at lower yields because of perceived improvement in credit quality. Many traditional investors in this asset class are not chasing 6-7% yields. There are plenty of lucky investors though who are able to take advantage of these yields. Wish I was one! @Enda f The “never been a better time to buy” story often ends in tears… @JtO “…have long argued on here for the government to get its finger out and start putting forward a more positive message” Gonna have to take issue with you there, JtO. As Tony Blair found out, spinning during a war is a very dangerous past time. Putting the positive spin on things is what our gombeen politics is all about and look where it has got us. You argue they could be more effective spinners. That’s more gombeenism .What the current financial war requires is honesty, no more, no less. But that requires a poltical and cultural sea change: we do not know how to do it. ‘Leadership’ is written about and called for as if it was something difficult. For us, that is true: it is hard because we don’t know how to do honesty. A proper leader would tell the truth, in all its complexity, including the uncertain bits, and then lay out a plan, including contingencies. Simple. At least give at try (a lash?) lads – could anything, anything at all, be worse than the current dispensation? @Comac Lucey How many of those assuring us that this is all “manageable” have put their money where their mouths are and recently bought large chunks of Irish government debt? It’s time people were asked whether they are eating their own cooking. (I direct this point not at CO’H but at leading figures in the government apparatus here – actions speak louder than words). JTO again: Fair enough. Maybe we should all be told where Ministers have put their money. But, what’s sauce for the goose… Those media economists (I’m thinking of one in particular) who continually campaign for Ireland to exit the euro and devalue by 30pc to 50pc, in the process putting further upward pressure on Irish bond prices, should likewise tell us whether they have invested their money in foreign bonds, property, equity etc, and so stand to make a huge windfall profit should the said devaluation occur. Hog, I bought property so believe me I know how it can end! I do think the sell off has been over done though. Unfortunately the Market can stay volatile a lot longer than I could keep my job! @ Tull i know! Just making the distinction as to what point they come over from the dark side to the green jersey side. @ Enda true. Paradoxically a lot of investors will wait for Irish spreads to com ein 150bps before they’re willing to buy. @All anybody like to explain why the government don’t compete for bank deposits by increasing the interest payment on their (lowly subscribed?) National solidarity bond. Why not raise money like this without paying exorbitant rates? Obviously it is not so simple – but why not? David McWilliams latest prediction – a depositors run on the banks. This type of prophecy can be self fulfilling. http://www.davidmcwilliams.ie/2010/09/20/capital-punishment-for-all Because you are taking funding from the banks and they need it! @AMcGrath Mr. McWilliams is using the future tense to describe an event that is already underway (and has been for some time). When it becomes evident, he will be looked back to and regarded as prescient. There is, however, nothing wrong with this, it’s just the way it is! Given the trade surplus and the amount we are borrowing from overseas, you (particularly you JohntheO) should be asking why has BOP not already shot positive? @Enda I take it that was a reply – but the logic escapes me. We are not only bailing out the banks but also paying exorbitant interest rates to (foreign) bondholders in case we step on the toes of the banks, This farce has got to stop – Maybe D McW is right @Tull Eoin Bond is right. The investors today got a great deal but now it’s in their interest that we suffer so their investment is secure. I approve of deficit cutting measures anyway, but I reserve the right to bristle when the people profiting from our misery tell us what to do. It’s a bit like giving out about your family but taking umbrage when anyone else does. Fair enough Sarah but it wasn’t the bondholders who made such a mess of the public finances. We are the ones going to them asking them for money to pay for the day to day running of the country. If we hadn’t made such a mess of things, then we could tell the bond Market to go shove themselves. Sarah, the bondholders only prosper if the global economy prospers & we are competitive enough to sell into it, be it widgets or tourism. In addidition we also need to get our public finances in order, preferably on the spending side. This means painful cuts in welfare, pensions & transfers plus the dumping of the dreadful Croker deal. The binning of stupid vanity capital projects like metro north has to be on the agenda . @Tull@Enda F Agreed. All, Its a pity that Enda does not have the courage to at least sketch out some version of this plan, instead of playing 2nd fiddle to Eamonn Gilmore. @Sarah “agreed” ? Do I detect signs of Stockholm syndrome? You agree with this comment from Enda? “Fair enough Sarah but it wasn’t the bondholders who made such a mess of the public finances.” The public finances wouln’t be such a problem if it wasn’t for the fact we are bailing out “bondholders” via the bank guarantee. The bond market anglers are just laughing at us as they watch us squirm on the hook. Am, the public finances deficit has nothing to with the guarantee. Even without it, We would be asking evil bondholders €20 billion to pay for the day to day running of this country. Perhaps someone who knows more about bond markets than I do can explain why ‘over-subscription’ (i.e. excess demand) does not lead to a rise in prices and a fall in yields? @P L Malone I’m not expert, but I’m guessing it did. The lowest bids were taken up to the desired amount and the yield you see was the average yield. Some prices were below it and some above it. One can only guess what the lowest and highest bids were (accepted and not accepted) as the NTMA doesn’t give this information (in the way, for example, that the US Treasury does). Hog, it does give that info. http://www.ntma.ie/GovernmentBonds/auctionDetails.php @ PLM all the bids are at different prices. Bid to cover without the context of the price issued at is sometimes meanignless – ie if we had 10x bid to cover, but all the bids were at 7%, then it wouldnt have been seen as successful. In today’s auction the yield did fall (yield issued at auction was lower than secondary market price beforehand), but this is only semi related to the bid-to-cover. Issuing under the prevailing market rate is all you can really ask for from an auction – keeping the yields low in between auctions is a seperate matter. Equally, if we had had a terrible bid-to-cover (say the auction failed because only 100mn bid for 1bn in bonds), but the rate that was bid was only 2%, we could consider it a bad auction because we could only sell a tiny amount. At the moment, for Ireland, ability to fund trumps cost of funding. Think of it like a game, but the markets are in charge of how its played, not the struggling issuer (us). The key is to retake control of the game over time. @AM Sure we messed it all up by ourselves. Bondholders weren’t in DoF for the past 6 years blowing money on waste and ignoring the shenanigans in Anglo. @ Enda/HM voila… 4.0% April 2014 Total Amount Allocated (million) – 500.0 Lowest Price Allocated – 97.610 = yield of 4.791 % Highest Price Allocated – 97.790 = yield of 4.730 % Weighted Average Price – 97.683 = yield of 4.767 % Lowest Price Allocated in Full – 97.620 = yield of 4.788 % Bid to Cover Ratio – 5.1 Non-Comp Closes 4 p.m. – Thu 23 Sep 2010 Total Non-Comp Amount Sold (m) – 0.0 Total Sold (Comp + Non-Comp) – 500.0 4.5% October 2018 Total Amount Allocated (million) – 1000.0 Lowest Price Allocated – 90.340 = yield of 6.047 % Highest Price Allocated – 90.700 = yield of 5.986 % Weighted Average Price – 90.485 = yield of 6.023 % Lowest Price Allocated in Full – 90.350 = yield of 6.046 % Bid to Cover Ratio – 2.9 Non-Comp Closes 4 p.m. – Thu 23 Sep 2010 Total Non-Comp Amount Sold (m) – 0.0 Total Sold (Comp + Non-Comp) – 1000.0 Thanks Eoin, great to get such clear figures. @Enda f Thank you very much. I’ve been looking for those for ages! Sarah, don’t go so easy on your FG’s brethern’s culpability in the boom, it was not all the fault of DoF figures and Anglo but also the fault of many FG and local councillors from FF and Labour who assisted the boom through crazy planning decisions. Holbrook Local councillors could have rezoned everything in sight but that would have had no impact unless the credit spigot was turned on. Central govt was largely responsible for this through its patchwork of property incentives and a complete failure to regulate the banks. Some of the craziest decisions were driven by the county managers/planners in addition to the councillors. Out here in Dun Laoghaire, the planners approved as long as it was high density. I notice the GP are not present of your list of shame. Probably asleep at the time some of the decisions were taken. Gormley certainly was on the night of the guarantee, not that he would have understood the issues anyway. @the loan arranger thanks for your response. @Bond Thanks for that clarification. Shows the value of a site like this. simpleton Says: September 21st, 2010 at 2:37 pm I think that is precisely the point. I do not expect it to become real until the next decade or so. Taxes will have to rise to cover the extra debts servicing costs, the deficits unaddressed, the losses on NAMA and the cover up of the banks. These will amount to many thousands per household per year in addition to current tax loads. Choose the system by which it is allocated to these households, the effect on the economy is going to be yet more depression of activity. At a time of depression. Failure to adequately tax land, as in the USA, means that land values are still very inflated in Ireland and have further to fall than most hope. Once land taxes are imposed, the perception will increase that prices have further to fall. They will fall anyway. By failing to tax land many addicted to land will hope to sell into the recovery. Many readers of this blog will be dead before the sustained recovery that this requires. The main point of taxation is that it is raised only on those who are able to pay, even if they scream loudly. The fewer the bleats from the sheep, the more successful the tax. Remember: many thousands more in tax per household per year for two decades or so! I leave it to those who love arithmetic over common sense to calculate to the cent! Please get used to the idea of paying much more. You may leave the jurisdiction, in order to lawfully avoid payment of these taxes. They represent the cost of the lack of maturity on the part of the voters who thought that rising tides were the order of the day! @Holbrook Fields What is depressing is that pretty much all local councillors of all stripes would head back to the “any development is good for this town” mantra at the drop of a rubber cheque. @Sarah Carey Holbrook Fields Holbrook has a point. Flu jab time – and Propaganda jab time ……… look around for the Irish version of the Koch_brothers …. @podubhlain re Property Tax – “In North America you don’t pay stamp duty up front”. I don’t know about all US/Canadian jurisdictions but in the Province of Ontario “Land Transfer Tax” is payable and an additional slice of the same is now being taken in the City of Toronto. Taxing the transfer of land at gross value makes no real sense to me (as opposed to value-add or capital-gain) but there you go… Comments are closed.