Shorter-Term Bond Yields

There is a lot of focus every day on this site and in the media on the ten-year bond rate rate and Bloomberg’s web page showing the yield on this bond is regularly linked to. However, the movements in the ten-year bond only tell part of the story of the past couple of weeks. There have also been dramatic movements in the shorter-term bond yields.

Here‘s the Bloomberg page for the two-year bond yield and here‘s the page for the four-year bond yield. Also, here‘s NTMA’s daily bond report.

The four-year bond yield, which had been about 3% in early June, reached 5% in late October and, as I write, stands at 8.34%, not so far short of the 8.92% prevailing on the ten-year bond. This suggests that the market is pricing in a debt restructuring in the next few years. (See this earlier post for a discussion of the relationship between bond yields and default probabilities.)

Even more disturbing have been the movements in the two-year bond. The yield on this bond had been about 2% as recently as June. It started November at 4% and, as I write, has now soared to 6.66%. Given that pessimists are likely to be assuming that Ireland will be borrowing from the EFSF in two years time, the implicit pricing in of a high probability of a debt default\restructuring as early as 2012 strikes me as unwarranted. But it illustrates the scale of the current negative sentiment towards Ireland in the bond market.

As of yet, the government has not been able to turn this sentiment around. An optimist might argue that passing the budget, resolving the political uncertainty via a general election and the emergence of solid evidence of a return to sustained growth might, together, achieve the required improvement in sentiment. A pessimist would argue that it’s too late.

Whoever’s right, the government needs to at least play it’s role in providing the first step in attempting to make the optimistic scenario come about by passing the upcoming tough budget.  If it could achieve that goal, then after that point, there’s a strong argument that the best thing the government can do is deal with the second element of the optimistic scenario by resolving the political uncertainty as early as possible with a January general election. As to whether the third element of the optimistic scenario—the emergence of growth—occurs, one could argue that this is largely out of the government’s hands at this point

157 replies on “Shorter-Term Bond Yields”

A snap election before the budget with campaigns based on the differences in budget proposals would result in a new government with a clear mandate for the 4 year plan. Would this not give much greater political certainty than an election after a possible budget fail?

@Karl W,

Full marks for attempting to sketch out the optimistic scenario. I really do want to believe it, but I’ve mislaid my rose-tinted specs. I doubt that bond investors pay much attention to Ireland in the normal course of events, but it now seems to be under severe scrutiny. And I expect that those who are looking but who may not have done detailed research are taking as a given that the price reflects the available information in the market. And that is pointing straight to the EFSF.

The political uncertainty is happening at two levels. First there is obviously a doubt that the government will be able to ensure enactiment of the budget as the first step in the 4-year programme – and even if it does, it is constitutionally prohibited from seeing the programme through. On the second level, there is mortal combat between the two main opposition parties to see who will be top-dog in any eventual governing combination. This would be bad enough if there were broad areas of common ground between the factions – other than an intense dislike of FF – but they occupy positions that are on opposite sides of the political divide in most mature and developed economies. The prospect of such an alignment being responsible for continuing the implementation of a 4-year adjustment must frighten the wits out of any bond investors who care to contemplate it.

And as to economic growth, there are sectors of the economy that seem in reasonable fettle – as JtO continuously and rightly points out, but they are shackled by serious dysfunction, inefficiency and deadweight cost in many others. But there seems to be no conceivable alignment of the politcial factions that would be willing to tackle these problems.

And finally, it seems Ireland is being used as a battering ram to test the apparent German resolve (reluctantly supported by the other 26) to allocate losses between taxpayers and bondholders.

@ Karl

We’re running out of time for it alright. But if the budget barely passes or fails for that matter are we not back to the drawing board on it with an immediate election afterwards. Would FG/Lab not campaign on reversing whatever cuts/hikes they didnt agree with in FF’s plan and redo the budget to their liking on their election. Which would lead to even more uncertainty into the New Year?

Budgets, elections etc don’t matter a damn anymore. The game is over. From talking to people, credit lines for Ireland are being pulled all over the place and they won’t be coming back within the next six months no matter what budget is announced or who is in Government.

It would appear that the game is up with regard to the bond market. Given the stated german policy of seeking bond holders to share the pain in future crisis, then perhaps we should bring this forward and seek to renegotiate our position now while we still have some time. We have a short window of opportunity to explore this before we run out of money. It would be far better if we raised this position now while we still have a little bargaining strength.

It may also be possible to gain support from Spain and Portugal, thus further strengthening our negotiating position. We would still have to address our budget deficit but that could be done in a less severe timetable allowing the possibility of economic growth pulling us out of this crisis.

As we all know Ireland had a massive increase in sovereign debt due the bank-bail out and also to finance the huge fiscal deficit.

I am of the opinion that without the bank bailout the country may have been able to survive the deficit by implementing a five year plan on deficit reduction and tax increases.

To try to reduce spending drastically at this stage just will not work as the effective reduction in GDP will only push the country closer to the edge. Similarly with dramatic tax increases. Only tax increases that hit the bond holders and pensions on small or zero multipliers will work as these increases will not have a huge effect on GDP. This Government will do neither.

It is funny that the dramatic increase in Government debt in the last two years has the only historical counterpart in war situations. We didn’t have any war. Imagine if we had a minister for finance who had the b***s to stand up to the senior bondholders this whole battle of DublinGrad would have been over in about 10 minutes and we wouldn’t be in this sorry state.

The battle of DublinGrad would probably have gone something like this.

SENIOR BONDHOLDER: “Finally I got you Brian have you been avoiding my call”
Brian “YES”
S BB”Why didn’t you guarantee us like the depositors, don’t you like us”
Brian “YES”
S BB” I am not going to give you any more money”
Brian “Why are you calling”
S BB “to make a deal Im in trouble, I’ll take legal action”
Brain “We make the laws”
S BB “Come on we went to Cambridge together”
Brain “10%”
S BB “Now we talking 15%”
Brian “All right if you say nice things about me in the Financial Times, what a tight argumentative b******d I am as I probable need to get some governments paper sold at a reasonable rate in the next few weeks to solve the fiscal crisis we have.
S BB “You are a tight b******d, goodbye”

It’s the punch-drunk boxer’s coach that throws in the towel. If Ireland is deemed to be causing too much damage to other peripherals’ borrowing costs or runs on banks, the EU might call time.

Who, WHO, advised the minister that corportate bank bonds were thought to be equivalent to gilts by “the market”?

What new information will the market be provided with on Budget day that might affect bond valuations? From an investor’s perspective the Budget is already a known, the detail of spending cuts by department largely irrelevant.

The market has already passed judgement on the 2011 Budget. It was the same verdict as on the 2010 Budget and its predecessors, just a harsher sentence.

The government ‘has not been able to turn sentiment around’ by repeating a failed policy.

Here’s another 10yr yield chart; Spain’s.

http://www.bloomberg.com/apps/quote?ticker=GSPG10YR:IND

Spanish and Irish yields used to be the same.

They had a fiscal stimulus equivalent to 2.3% of GDP in 2009 mainly public works, domestic demand recovered (along with imports) and the budget deficit in the first 9 months of this year has fallen to €163bn, compare to €252bn in the same period in 2009.

http://www.bloomberg.com/apps/quote?ticker=SPBUEURC:IND

This cannot at all be attributed to the ‘austerity’ measures imposed on Spain, as the improvement in the deficit preceded them, The cuts have already begun to slow that improvement and will eventually send it into reverse.

http://www.guardian.co.uk/commentisfree/2010/sep/24/recession-ireland-spain-recovery

With all due respect Karl what nonsense – there is no turning around – this is a straight up extraction operation by the European banks and their agents in Goverment and more especially the CBs – nothing more.
When they are gorged they will spit what is left out and leave us with little but the memories.

Please check out the Great Bill Blacks appearance on the VB show last night – this is a financial crime spree pure and simple.
Maybe I am being naive when I say Justice is no longer present as it has been hidden behind a giant credit engine of wealth transfer for years but now that the music has stopped and the lights are on we can see the conducter and justice is not in his script just law based financial thievery

KW,
Will today’s proposal by Prof Lucey et al to institute a further debt forgiveness regime -NAMA 3-which would blow a further hole in the banks and impose the losses on a) taxpayers or b)bondholders help matters?

@Ahura,

I think you have it in one. It’s fine for the Government to say “we don’t care how high or ridiculous these yields are; we don’t need to access the market for months”, but all other private sector or semi-state players who might wish to access the international capital market are being shut out. And this contagion is spreading to the other peripherals. In years to come we’ll look back and marvel at Ireland’s ability to stay going – and to be allowed to stay going – for so long.

Tull
the hole is blown…just like the hole was blown from the developers the residential hole is there also. Now, how do we fill it? Im open to suggestions. But we cannot deny that there is a very large hole in the residential mortgage book that will never be recovered. Plans anyone? Denial didnt work last time round..

From RBS: “The ECB’s lack of action is puzzling to say the least and begs the question as to whether it is fulfilling its financial stability mandate. With three countries in the euro area now having virtually lost access to capital markets, the implications for the region as a whole could easily become systemic again. Let us recall that there is Eur2 trillion of debt securities issued by Spain, Portugal Ireland and Greece in the hands of financial institutions resident outside of these countries. If that is not enough to worry about financial contagion what is?

The more the ECB waits the bigger the purchase programme will have to be. It is high time that European policy makers take pre-emptive action. We have been arguing since May that the ECB should be more proactive and support Spain before the crisis spreads. Now is time to act.”

Surely FG will make sure the budget is passed by doing a pairing job with FF and then claim afterwards that the budget was FF’s fault as they go into an election which has to happen as soon as the budget is passed.

I get the feeling that the latest rise in bond spreads is about more than Ireland. Portugal is in trouble too and the wider Eurozone could be dragged into it.

Lots of speculators seem to be betting on an Irish default. Maybe they get it wrong. The hostility to Ireland in the market is striking.

Slightly off topic, I have just discovered John the Optimist’s real identity! He is in fact Danny McCoy from IBEC. For proof see his article entitled ‘Rumours of a Nation’s Demise Greatly Exaggerated’ on page 14 of today’s Irish Times. Pure JTO – completely divorced from reality.

@seafoid
Pairs are only offered to ministers absent on urgent government business.
It is most unlikely, though not impossible that a cabinet minister would vote against their own budget, but that would be GUBU territory.

The danger to FF comes from some of their own revolting backbenchers with an eye to reelection at the forthcoming GE deciding to vote against specific provisions on either budget day or more likely a day or two later on social welfare provisions.

PS
The cabinet members are also revolting.
😉

I thought the bank bailout was supposed to calm the markets…..oh silly me for believing government spin. Whats going on is fraud on a massive scale.

@ Karl
How in the name of all that is holy can you say that “pricing in of a high probability of a debt default\restructuring as early as 2012” strikes you as unwarranted???

Enda is correct. The 6 billion cuts have been factored in already and the markets don’t care. MK was right its just arranging deck chairs stuff.

Dan O Brien this morning and now you speaking only of very best case, require luck, scenarios.

We either implement a default that is favorable to us or we allow the ECB do it.

The former gives us more control the latter allows us save face a little.

@Michael Burke,

Not true… the new information available to the market on budget day (or after) will be whether the budget gets passed.

It has already been reported than many traders think that a 6bn adjustment will be politically impossible. If such a budget is passed (in Dec or with a FG led govt in Jan) and broadly accepted by the public, it should settle some market nerves.

When interest rates on bonds are of a rate that is unaffordable we will have no choice but to seek EU/IMF funding. It is just a matter of if (what price they remain at) and when (do we second guess the market and take. say 6%, from the EU/IMF instead?).

In the end Ireland may have no choice in the matter- if we can’t afford to pay what the market wants to lend us money they won’t lend it.

@ Paul Hunt

i think we will see a much more aggressive bond buying program in the next few weeks, in an effort to stabilise the markets. Otherwise we will definitely be back into “is the Eurozone on the brink?” territory again before Xmas. This isn’t just affecting Ireland. I imagine the Bundesbank is holding out, but its their banks that will ultimately take the brunt of any restructure, so they may not have any other choice. Some aggressive bond buying, alongside actual positive developments like the Irish adjustment plan, budget and an election, may be enough to get control back of events before they go past the point of no return.

Incidentally, FT says Bank of Ireland alone needs to post €250m to cover higher margin calls on its Irish bond trading. The bond market effects are spiralling even with the “fully funded to mid 2011” mantra.

@ Bazza

Where does this leave the efficient markets hypothesis of perfect information ?

A bunch of traders in Lahndan are worried about Suvin Island guvvies and the groupthink says the budget won’t be passed. How informed is that view in reality?

Hmmmm, something is in the works, dont know what, but something is going to happen soon on this…expect the unexpected…

I’m just listening to Lenny on the lunchtime news discussing the rise in yields.

Paraphrasing, ‘It’s all the fault of the Germans’

He does, actually have a point though. The hornets’ nest was stirred when Merkel proposed haircuts after the 2013 EFSF expiry. At least she was being realistic though.

The fundamental point is that there is no way that Ireland can generate the tax revenues to meet the obligations of the PS and the Bank Bailout in enough time for new lenders.

What I still can’t understand is why the ECB is letting this happen given their exposure to Ireland now that they have been acting as a dumping ground for bank assets?

The Germans have accepted that the time is up on Ireland. Thats why Merkel said there will have to be a deal made with the bondholders the other day. All computer models are predicting collapse.

The long term holders of Irish government paper were sold out when Lenihan accepted the Anglo/INBs bondholders as equivalent. They looked on in horror when they realised their paper had been debased. They wont come back in a hurry. Even if Ireland wants to put on a hair shirt and parade around Europe showing how it making the unemployed suffer and shutting down hospitals. It wont work because the level of debt per capita in Ireland is too high and even if you tax everyone at 70% and give them nettle underpants the problem wont go away. The Lativan solution is a non-starter for Ireland because if you go in the home of someone who owes a million euro and ask them to transfer a huge portion of their rapidly falling income to you for their debt they will just get in even more trouble.

We need to start to start negotiating with the bondholders for an orderly default and organise an EU/IMF loan.

What happened last year – absolutely nothing except Ireland went around crowing that they grasped the nettle and they werent greece. Meanwhile the banks transfered their harp junk bonds to cash by calling them Tier 1 and cashing them in with the ECB. Ireland hovered up about 15% of then stability fund in this way leaving Irish banks (who are largely goverment owned) 115 bn in the hock to the ECB. Is this amount added on the national balance sheet – No but it should be because it is largely secured by Irish Goverment paper and NAMA bonds etc. in institutions owned by the Government.

These harpic bonds, like louisana don’t have a job mortgages that triggered the last financial crisis are worthless and will never be paid back. The only question how low a floor will Frankfurt put on them. As time goes on some of the German pension funds are suceeding in getting some of their exposure down as the Irish Government burns what is left of its cash pile and National Pension Reserve keeping the story going. I believe some 10 bn on Anglo Senior bonds got their cash in this way a few weeks ago. Maybe that is why the Germans are letting us off at the moment letting us run away until all liquidity is sucked out of the system. They can then drive a much harder bargin.

Karl, I wouldn’t see today’s high yields as reflecting fears of default per se, as you suggest. I explained here what happened to GGBs
Breaking open the piggy bank (I didn’t choose the title by the way!)
GGBs are now in cold storage for some years. The market is highly illiquid. Worse, the interests of bondholders are seen as subordinated to international political interests, with moral hazard seen as rising on the back of aid (Greece indicated yesterday it mightn’t make its 2010 deficit target). All that in turn contributed to another round of rating downgrades. Many GGB yields are 12% or more now as a result (+ high debt etc).
Similarly recent talk of introducing some kind of resolution mechanism for sovereign default also takes us further along the road of subordination of investor interests to the politics of the day. The political reaction to those fears is strong. They were publicly expressed yesterday by Portugal’s MoF yesterday, Teixeira dos Santos, who called for an urgent clarification of what is meant by restructuring.
He also reacted, sensibly, by reinforcing the country’s commitment to reaching a budget deficit of 4.6% of GDP / GNP next year (and remember in June next year, we’ll be entering the 5th year of crisis since subprimes hit us).
Actions such as this will help avoid intervention in the economy, with the ensuing loss of reputation and sovereignty, with RTE today giving a stark reminder of what this entailed, in the case of Latvia .
I think Mr Honohan’s recent comments have been helpful in allowing investors understand the outlook, and even in soothing fears. That however counted for nought given the shenanigans in Berlin, Brussels and elsewhere (criticisms on this blog of Mr Honohan’s comments strike me as unfair). I don’t think the LCH was a mover yesterday, nor will its impact on flow be significant. LCH was a mover when the story (foreseeable) first broke early last week, in simply adding to the woes. In the case of Greece, it was more rating downgrades, or their prospect, that obliged some mutuals into selling paper at high yields.
Contrary to Karl and Seafóid above, I do not agree that there is much “hostility to Ireland”. Indeed I have been struck by a massive well of sympathy over the past years. This sympathy unfortunately is being eroded on present policies. Maybe the fall from grace feels all the harder as a result. It was said of GGBs when they were selling off big time that it was largely speculative driven. That wasn’t true.
Contrary to Eoin, I don’t think more ECB buying of governments bonds gives us a near term or long term solution. Indeed it could worsen the outlook (the palliative worked a few weeks for GGBs, before they shot up to the 12% level). The only real solution is in appropriate policies that secures the outlook for the taxpayer.
I still think there are actions in Ireland that can be taken by the present or next government to avoid having to call in the EFSF, and that’s a fate still worth avoiding. Some bloggers above allude to what’s needed. Government ministers have consistently said such actions would involve too much pain. Pain, yes. But most taxpayers and government bondholders want the sovereign to be protected first and foremost. I’ve been arguing that view for over two years now, if in necessarily guarded language. Today the course of least pain for the taxpayer over the coming years involves making ever tougher choices, and quickly.

bazza,

i disagree. The passing of the budget is largely irrelevant considering the govts likely collapse in Jan-Feb.
The uncertainty will remain budget passed or no until a GE.

@seafoid

I think (and so do many others in the last two years) the efficient market hypothesis is, well, seafoid, especially in times of stress like now.

I have two books at home, one by Bill Sharpe and the other by Brealey/Myers and they do not even have consistent definitions of strong efficiency, never mind give clear discussions of evidence for or limitations of the theory. Of course, if everyone believed markets were efficient, nobody would look for inefficiencies and markets would then be inefficient.

After 50 years crises and of Goldman and others making money through inefficiencies, I think its time to treat the theory as it should: a nice assumption that only works when you don’t need it.

That said, the markets do have some legitimate concerns regarding whether this govt (or the next) can implement the required adjustment. But it does seem to me, as you allude to, that there is some herd mentality operating in markets at present.

Have we hit a new low that the Greek PM is patting us on the head? (or tickling our bellies, as Morgan Kelly would describe it)

“Whoever’s right, the government needs to at least play it’s role in providing the first step in attempting to make the optimistic scenario come about by passing the upcoming tough budget. If it could achieve that goal, then after that point, there’s a strong argument that the best thing the government can do is deal with the second element of the optimistic scenario by resolving the political uncertainty as early as possible with a January general election.”

It sounds about right. It may have been optimal to call an election at the time of withdrawal form the bond markets. At this stage, however, it is probably better for FF to pass the budget and then call an election. It will be at the absolute worst time for FF but that’s life.

@wow

If the budget is passed and new govt is elected next year, they would not undo the adjustment as it would not be to their advantage – the cuts are necessary anyway and they could be blamed on FF.

However, I do take your point that there will be a lot of uncertainty until an election.

My main point was to refute the point by Michael Burke that the market had already passed judgement on the adjustments that are about to be made. That is patently not the case as it is far from certain that the adjustments can be made effectively – publishing a figure of 6bn is simply not enough to convince anyone – it needs to be acted on.

@Eoin
“Hmmmm, something is in the works, dont know what, but something is going to happen soon on this…expect the unexpected…”

Intruiging I wonder if it is the same thing I heard. What time scale did you get?

Bond. Eoin Bond

“Hmmmm, something is in the works, dont know what, but something is going to happen soon on this…expect the unexpected…”

Your’re such a tease.

🙂

Mr. Bond,

Please, sir, unburden yourself. The fall, aeons ago, of the rupee was excessively melodramatic..is this worse?

@ DE

“soon” was best i could get. Suggestion was that this will be something different altogether, Ireland going out on its own on this one…

are youse talking about the bailout package preparation which is being discussed in German handelsblatt for this state.

If so it seems its not secret except maybe to those who rely on RTE Fianna Fail broadcasting.

When everyone else is saying we were bailed out Greek style RTE will still be dreaming and spinning. God bless their cotton socks.

http://imarketnews.com/node/22262

The increases in the short term yields greatly reduces our options when returning to the market
The NTMA probably hoped to return to the market at the short end of the curve, build up confidence and move out longer.
At rates of nearly 8% from 3 years onwards and approaching 7% on the t-bills this option is looking less likely.

I think it will be close to impossible to convince the markets they may be wrong and for rates to return to levels where we can afford to borrow.

@ anyone

Sorry off the point

Does anyone know where I could get statistics on the number of Irish first time buyers that entered the market in 2005, 6, 7 & 8 ? Trying to get a feeling for the likely number and the % percentage of the market that they represent…..

Could it be as simple as FG abstaining from the budget vote? (at least for starters?)

**Irish Opposition’s Noonan Says ‘Of Course’ Won’t Vote For Budget

But…… he thinks the government have a majority to pass the
budget. Sounds like he is signalling that the opposition will
abstain in the budget vote. Speculation has been around for a
few days that this might happen.**

Could one of the economists on this page clarify something for me. According to Morgan kelly the budget is irrelevant, its the current 50billion bank bailout and potential 70billion that is driving the yields.
Personally, the German proposal only brought all this to a head. It was going to happen anyway.

@David Burke,

Precisely.

The only way Ireland can avoid the EFSF/IMF is if it doesn’t need to borrow at all.

That requires closing the budget gap and/or raiding the NPRF.

Whose fault is now irrelevant.

The NTMA have (had?) an excellent market reputation so if they decide they can’t tap the market then that’s that.

What that means for Ireland’s banks is then secondary.

Madame Lagarde hammered in the final nail by announcing that she is siding with Angela Merkel.

Maybe they believe that it is ‘speculators and hedge funds’ who will ultimately pay the price? Its seems like a big gamble.

14:07 11Nov10 RTRS-REUTERS POLL-IRELAND WILL SEEK INTERNATIONAL BAILOUT BY END-2011, SAY 20 OF 30 ANALYSTS
14:07 11Nov10 RTRS-REUTERS POLL-IRISH BAILOUT COST LIKELY AROUND 48 BILLION EUROS, ACCORDING TO MEDIAN FORECAST
14:07 11Nov10 RTRS-POLL-Ireland bailout likely before end of 2011
LONDON, Nov 11 (Reuters) – Ireland will seek international rescue funds before the end of next year, says two thirds of economists and bond strategists polled by Reuters on Thursday.
Twenty of the 30 analysts surveyed said Ireland would not make it through to the end of 2011 without seeking funding externally. The price of any bailout would be around 48 billion euros ($66 billion), according to a median of forecasts from the 10 respondents who gave a figure.
“It’s not just an Irish problem, it’s a European problem,” said Alan McQuaid, chief economist at Bloxham Stockbrokers.
The respondents comprised economists at research institutes and top Irish and European banks, and bond strategists at large dealers.
Last month, a snap Reuters poll showed a slim majority of economists thought Ireland would likely avoid tapping the European Union or International Monetary Fund for a bailout next year.
Since then, market confidence in Ireland’s ability to cope with its huge debt burden has fallen significantly.
On Thursday, the cost of insuring Irish debt against default hit a record high and the 10-year Irish bond spread over equivalent German debt — another measure of perceived risk — hit 685 basis points, the highest since the euro was introduced.
(Reporting by Andy Bruce, polling by Bangalore Polling Unit; Editing by Ross Finley and John Stonestreet)
((andy.bruce@thomsonreuters.com; +44 207 542 3484; Reuters Messaging: andy.bruce.thomsonreuters.com@reuters.net)) ($1=.7253 Euro)
Keywords: IRELAND BAILOUT/POLL

@Eoin Bond:
“Ireland going out on its own on this one…”

Don’t say that Mr Lenihan has had another brainwave, like the cheapest bailout ever ….

I wonder whether I can get Lumper seed potatoes.

bjg

@Conor,

Not an expert, but I believe it is also an aggregate quote of some type.

Maybe someone else can help?

@ Highway/Conor

thats probably a mid price. 9% and above was only ever on the bid, think 8.95 has been the high mid.

@ Eoin

Are you saying something outside the expected EU/IMF package is being considered?

Haircuts?
IMF solo?

Investors say the Irish situation is unsustainable, despite the government having no immediate need to raise funds. “Irish private sector companies wouldn’t be able to raise money abroad, the government could also suffer a big downgrade, and panic would spread to other countries, such as Portugal,” the fund manager added.Greece and Portugal have made significant efforts to attract Chinese investors to stabilise their debt markets and to inject cash into their ailing economies. Asked if he would allow Chinese ownership of Irish banks, Honohan said he is “too much an internationalist to say no to that”.

From http://www.guardian.co.uk/world/2010/nov/10/rumours-of-irish-bailout-abound

Any significance to these comments?

@ Celtic

in the words of Manuel on Fawlty Towers, i know nothing.

BUT, i believe the government may now be thinking of solutions that do not involve the ECB. This may simply refer to more domestic stuff, ie like FG abstaining and then ultra quick election combined with NPRF buying bonds, or it may involve something far more aggressive and nuclear-option in nature. The same options as you suggested have passed my mind this afternoon.

@ Eoin

That would tie in with Honohans ‘IMF/China’ talk yesterday. That’d stir up a political sh*t storm. Do our boys have the smarts/nerve?

The time on those bbg bond yields is et or NYC time and are delayed and generic composite yields. For a specific bond you will need to subscribe.

If the govt start liquidating the nprf to buy new bond issuance the Irish stock Market will implode plus of course 6 bn is in directed investments in aib etc and thus pretty much worthless already. Despite this the nprf have them marked at a small loss. Either way it will turn ugly

In the same vein that Ireland either make hard choices or they will be made for us. The Powers that be in the EU either take the hit and negotiate a bailout or take the hit in enormous Irish State/Bank default on European Creditors.

In negotiating a bailout we need to
ensure suggested budgetary adjustments preserve the most vulnerable not just in terms of income but those dependent on state services for ill health…, that is vital for our Society.
Ensure that the overpaid vested interests preventing the adapation of logical efficiencies in the public sector are out of the picture entirely.
Ensure that agreed tax increases are determined in terms of the least impact on economic activity.
Ensure some additional funding is available for economic labor intensive stimulus.

England had the IMF in the 70’s. Bailout may be a better option create some certainty to our public finances and hopefully spell the end of Fianna Fail

@Eoin
I heard it didn’t involve the ECB either just an old fashioned bailout from the traditional source.

@Eoin, D-E,

Why do I get worried when I hear og our govt doing a solo-run. I have in my mind a picture of chimps behind a TV with screwdrivers and an instruction manual. (credit to MMCD)

@ Celtic/DE

China badly needs a North Atlantic submarine base. Maybe they have an eye on the Aran Islands.

The EFSF specifically included the IMF to a European bailout to make it look like it wasn’t a German taxpayer funded bailout. It wasn’t solely an IMF construct in order to ensure that the Germans had a say in things though however.

The longer the govt. maintain the pretence that market yields don’t matter the more expensive it stays for Irish companies to borrow. Selfish?

…. where is New Pitcairn? We’ve been steered needlessly into the Maelstrom.

Frankfurt? Washington? Beijing? None of the above? All of the above?

In Dublin, we still have a little time – but could do with a €50 billion boost … the centre of all this is Frankfurt ….. but its haste to protect core is destroying periphery …. notwithstanding the outstanding support of ECB …

@Eoin
If you had just been hung out to dry by the Germans wouldn’t you turn to the Americans? Or would you just call it The Emergency?

@ Simpleton

im completely behind the idea of going outside the EU for help if the Germans aren’t willing to step up to the plate. We’re basically at war right now.

@G Fahey
Try the IBF (Irish Borkers [sic] Federation). They, I think, produce stats on all mortgages issued. Not the same as all FTB purchases, probably only the revenue have that information, but a good proxy for overall share of the market.

Simpleton,

Based on past historical experience, the French never turn up on time and hen they do its in insuficient numbers. The Germans never turn up at all, just send a token gesture. So, it is the Americans every time.

The IMF will be used to impose losses on our European ‘partners’, I suppose. We’d better start looking for a new currency and a new trade alliance…

@Enda F

“On Thursday, the cost of insuring Irish debt against default hit a record high and the 10-year Irish bond spread over equivalent German debt — another measure of perceived risk — hit 685 basis points, the highest since the euro was introduced.”

RTE are reporting 9.25% at 15.33pm which would equate with the spread quoted by Reuters.

As Mr Bond says it is puzzling why the ECB have not intervened or are they buying in order to stop truly horrific rates emerging.
If the Minister tried a solo run to the IMF whats the likely reaction of the ECB?

“im completely behind the idea of going outside the EU for help if the Germans aren’t willing to step up to the plate. We’re basically at war right now.”

…. this coming from someone who insisted that senior bank bondholders couldn’t be touched?

Karl,

The need for an immediate general election is the opposition’s line. Not that you can blame them for it, it’s part of the normal political argy bargy, even if it’s not always seriously meant and it’s become an opposition reflex response over the past two years. As one journalist put it, if you asked Eamonn Gilmore the time of day he’d respond: ‘we need a general election’. Same goes for FG and SF.

Until the government runs out of a Dail majority, which it will whenever it calls the three outstanding by-elections, we have political stability in that the executive can force its policies through the Dail; there has been no popular uprising (apart from a few students occupying a building and throwing a beer can, a bottle of water and some other article over the railings of Leinster House) and if it does some meaningless deal with the Independents and leaves the basic old age pension alone, it will pass the budget too.

This government hasn’t lost a single Dail vote – unlike Haughey’s 1987-89 administration, which lost five before he ran out of patience and called an election. Garret FitzGerald’s 1981 administration had a 1 vote majority from the day it took office until the 1 vote – Jim Kemmy – revolted over the proposed tax on children’s shoes. It’s an old axiom of Irish politics too, that the government that looks most stable from the outside may in reality be teetering on the brink of collapse while the one that looks least stable may be a solid as a rock and there are historical examples – the ill-fated FF/Labour coalition for one – to support that.

I don’t know who fed the moneylenders the notion that we have political instability – if they are in fact demanding an election(?) – because we don’t. Nor does an election make any difference to the targets in the four year plan, since all the parties likely to comprise a government are signed up to the 3% by 2014 target. A new government may tweak the measures proposed by this administration’s plan, but they won’t do anything that would affect the targets.

So if the government can get the budget through, then the argument is whether there should be a post-budget election or one after the Social Welfare and Finance Bills implementing the main provisions of the budget have gone through, which takes us up to early March. Personally, for the sake of the country, I think it would be better to wait for the election until then. But that depends on external events as well, particularly if the NTMA has been able to go back to the markets or not, if the EU has sorted out its inner wranglings about bail-out conditions etc. and if a similar run on another one of the peripheral countries hasn’t taken place.

Ironically, Fine Gael is the party faced with the most difficult decisions in all of this. Labour will make substantial gains in the next election irrespective of what happens and FF are toast. FG need to keep cool heads and weigh up their options carefully. Otherwise they risk being part of a short-lived, car-crash administration rather than a successful stable government capable of lasting two terms.

@ Ahura

not sure what your point is? My belief was that the EU would not allow senior debt to be defaulted on, and that we had to comply with this wish. The quid pro quo was that the EU would support us in this aim, by using the fullest extent of the ECB’s power to provide cheap liquidity for us for the next few years, and after the ECB SMP program was enacted to stabilise the market for Irish bonds via large scale buying and other stabilising actions. This is clearly not taking place right now.

Some commentators and politicians are stating FG/Labour broadly agree with the proposed 6 billion budget cut and some measure of political stability will be restored following a general election with FG/Labour overseeing the cuts.

Why? Any new government has no mandate to pay back German and French bank bond holders even if the ECB has mopped those bonds up and we pay them instead.
This morning on radio I heard several contributions stating wealthier pension holders should pay more tax and a bunch of marxists,sorry ‘respected’ economists wrote a letter stating overstretched mortgage holders should be pardoned some of their debt even if those who did the right thing are made to pay up to cover those people’s reckless borrowings.
Before I could analyse the merits of their case from a broad society point of view the capitalist in me rushed to the surface and concluded that if I were in that position I would park all liquid assets I had overseas and claim the poor mouth.
I wonder how many ‘wealthy’ pensioners and mortgage holders with other assets are now silently transferring their assets overseas.

@Eoin,

Do you think it is because the ECB have realised that buying in the sizes that they have been has been a pointless excercise. They will have to buy huge amounts of debt and they won’t be able to drain that liquidity from the market like they have been doing. Basically the ECB will have to engage in QE if they are to have an impact and I can’t see the Council ever agreeing to that.

Its the EFSF or nothing as far as I can see.

@ Enda

“Basically the ECB will have to engage in QE if they are to have an impact and I can’t see the Council ever agreeing to that.”
Eh aren’t they already doing that? But just not enough right now?

@Sean o’

Labour do not agree with the 6bn; they don’t want to go further than 4.5bn in the 2011 budget and that onthe basis of 50/50 tax and spending cuts. A new administration comprising Labour and FG would face an immediate disagreement on the level of cuts required. Historically, Labour in government has won such arguments with FG.

Bazza

in the rush to contradict, you’ve shifted from the key issue is whether the Budget is passed (yr comment at 12.24) to its implementation…’it needs to be acted upon’ (1.21).

Unless you have in mind some revolt by the civil servants then whichever parties pass the cuts Budget will oversee its implementation.

If, however, you change terms once more and argue that it would need to lead to actual deficit-reduction, there you have me. Because it won’t.

What all the advocates of further cuts fail to explain is why this time it will be different. Why will cuts lead to a narrower deficit this time, when they led to a wider deficit previously? 2008, 2009, 2010. What has changed either about the economy or the cuts package? Why will €15bn work, when €14.6bn has been implemented 2008-2010?

@Bond. Eoin Bond

Is it not a bit late in the day for the ECB to begin large scale purchases of Irish Bonds?
Surely they should have been in the market over the last week (at least) to prevent the rot setting in.
Any post bailout buying will not necessarily lower the yield as demonstrated by the Greek situation.

@Michelle Norris

Slightly off topic, I have just discovered John the Optimist’s real identity! He is in fact Danny McCoy from IBEC. For proof see his article entitled ‘Rumours of a Nation’s Demise Greatly Exaggerated’ on page 14 of today’s Irish Times. Pure JTO – completely divorced from reality.

JTO again:

You are wrong. But, then you are an academic, so it doesn’t matter.

The idea of an academic accusing the head of IBEC, one of the leading business organisations in the country, of being completely divorced from reality is quite bizarre. Most academics spend their entire lives without ever coming into contact with reality. I’d imagine that the head of IBEC knows a lot more about how business is faring than all the academics in the country put together. One of the many problems with this site is that there are hardly any representatives from business organisations posting on it, indeed hardly anyone who makes/sells things for a living posting on it. It is mostly academics who have far too much free time on their hands. The fact that the head of IBEC apparently agrees with my analysis is a strong indication that my analysis is correct.

And he is not the only one.

Governor Patrick Honahan is quoted as saying:

“Ireland is well on the way to fixing its problems. I think what we are seeing is maybe a delayed reaction to issues the bond market hadn’t been focused on, and at this stage they probably GREATLY EXAGGERATED the problems.”

Sounds rather similar to many of my posts.

Is he divorced from reality too?

I’d also guess that he has Morgan Kelly, among others, in mind when he says ‘ GREATLY EXAGGERATED ‘. The difference between Governor Honahan and Morgan Kelly in their comments this week is so great that one or the other must have got it totally wrong. Governor Honahan says: “Ireland is well on the way to fixing its problems” and “problems GREATLY EXAGGERATED”. Morgan Kelly screams: “We’re totally F**K*D”. Ipso facto, one of them must be a lemon. You can take your pick which, but one of them has to be. No way round that. I know who my money is on.

@Michael Burke

When I said “it needs to be acted upon” I meant the 6bn that had been floated needs to be actually get through the Dail. This is the new information that will be available on budget day.

And I don’t make any claim about the effectiveness or otherwise of the cuts. The fact is that if we don’t make a good attempt to reduce the deficit the markets will dry up. If we do, there is a fighting chance we can return to the markets in Jan.

Anyone know the likely terms of a solo IMF loan? It’d be below the stability fund but how much below? A big pile of cash at 2/3 percent would be nice.

@JtO
Seriously you can’t be that niave!

Just because PH has come out and said everything is honky dory doesn’t mean he necessarily believes it. Can you imagine the reaction if the head of the CB came out and said we were broke and the markets should charge us more?

dreaded_estate

Is Governor Honahan part of some forced labour scheme? I wasn’t aware of it. I assume that he’s in the job voluntarily. If he agrees with Morgan Kelly’s analysis, then, out of duty to the country, he should resign as Governor, which would force a general election. If I was Governor and I believed that Morgan Kelly’s analysis was correct, that is what I would do. There is no reason to think that I have more integrity than Governor Honahan.

Presumably, the same can be said about the IBEC head.

In answer to the question “why does the ECB not intervene”. The ECB monitors the bond markets on a second by second basis and have routinely intervened to stabilise the bond market for Ireland, Greece, Portugal and Spain. The ECB is not a bottomless fount of funds and do not have the resources to pick a target % rate and support it at all costs. They do intimidate speculators by intervening to stop abrupt downward moves in bond prices. Ireland is now on the front page of the business section of almost all major newspapers around the world. The elephant in the room is unstable gov’t, this is an issue that has to be addressed and the sooner the better. Political uncertainty adds to the price of Irish bonds, an early election will remove that uncertainty although it will make things worse if the market operators decide that the replacement is worse than the incumbents. A budget before an election just delays the inevitable for a few months as the political wrangling will make plain to everybody the political divisions within the country.

@Michelle Norris/JTO

Having some familiarity with business, last Friday I wrote on Danny McCoy’s speech at the IBEC conference, which covers the same ground.

One of our problems is that we often confuse propaganda with facts.

http://www.finfacts.ie/irishfinancenews/article_1020958.shtml

@ All

The Budget is going to be only one element in the journey to what is likely to be a bailout.

Since August, there has been a drumbeat of negativity in the international media and it’s unlikely that the economic/political uncertainty will change in the next 6 months.

If the Eurozone permanent rescue mechanism includes some option for private investor haircuts, fears of restructuring risks will persist.

Besides, there is already evidence that sovereign funds want a quieter life and are dumping peripheral bonds.

Its in Germanys interest that the peripheral economies remain very weak but not insolvent so Germans taxpayers dont suffer bailing out the PIIGS.
I say this because it should hold the euro down against the Dollar thus maintaining germanys export jugernaut.If the euro breaks up ,the new German mark would rapidly appreciate against the Dollar and the PIIGS new currencies,a lose ,lose situation for Germany.

Enter the chinese who may maintain this default rich man poor man euro zone through asset purchase of euro debt thus maintaining their profitable market in europe whilst purchasing capital equipment from the Germans.
Will europe become the proxy battleground for the chinese/US currency war? (there is chinese interest in portuguese debt and they ar buying Greek assets).
This may be speculative but when the entire euro system is in disequilibrium then so called ‘Black Swan’ events may become more common.

@Jarlath
‘The unpopular government is bracing for collapse, and on Tuesday, Irish government bonds continued a week-long slide to a fresh record low. The debt is judged as risky as Greece’s was this spring just before that nation begged for a European Union bailout.’
The above from the WSJ says it all. Little wonder we are in the mire. The article lays bare the inept handling of the banking fiasco and should be read by all optimists.

WSJ on the option of an IMF solo run:

Could Ireland go directly to the International Monetary Fund instead?

IMF funding would almost certainly be cheaper than from the facility, with a loan of five to 10 times Ireland’s IMF quota coming in at 2.2%-2.8%. The IMF said Wednesday that it hadn’t been asked for help, but praised the government’s efforts to rein in the deficit. It also is less likely to demand changes to Ireland’s corporate-tax policy, seen as key to its success in attracting foreign investment.

Evading the euro zone’s support mechanism may be politically tricky; given the Irish banks’ reliance on the European Central Bank, the euro zone would expect a role in any rescue. Excluding the European authorities would deal a fresh blow to Europe’s prestige.

But Ireland is a different case from Greece; it has undertaken this kind of fiscal repair before and succeeded. In Ireland’s case in particular, a punitive lending rate and further fiscal demands make little sense. It should use what cards it still holds to strike a better deal.

@Frank Galton
Good to see some support from the WSJ.
Looks like the IMF route as floated by the guys above may be an option. Put Angela in her box and let Trichet nurse the 100b of Irish debt he currently holds.

“Nov. 11 (Bloomberg) — Royal Bank of Scotland Group Plc, Britain’s biggest government-owned lender, dropped in London trading because of investor concern about 42.2 billion pounds ($68 billion) of loans to Ireland, according to MFGlobal Securities Ltd. analyst Shailesh Raikundlia. “

I can’t see the IMF offering to help outside the fund. They risk destroying the euro if they did. To be fair though, the Germans and French have stuck the knife in so might be time to call their bluff. Lets see how strong the german banking system is in the face of a full blown crisis.

What are the politics and the political cost of a solo run? How about this : Mr Trichet is horrified, horrified! to find out that NAMA bonds are not what he thought. Slam! goes that window. Or the commission starts to investigate, with intent, the implementation of divers directives.? Do we REALLY want to get into a peeing match with the federales? Do we?

“Nov. 11 (Bloomberg) — Irish government bonds tumbled for a 13th day on mounting concern that the nation will be forced to restructure its finances.

Spanish bonds also headed for a 13th day of declines as data showed the nation’s economic growth stalled. French Finance Minister Christine Lagarde said yesterday that investors must share in the cost of safeguarding sovereign debt. German bunds advanced on demand for the safest assets, while Portuguese debt recovered from earlier losses. Italian bonds fell.

“Lagarde’s comments mentioned restructuring, and that’s another nail in the coffin” for so-called peripheral nations’ debt, said Steven Major, global head of fixed-income research at HSBC Holdings Plc in London. “There’s still a big constituency of investors and traders who have not recognized until now that restructuring could happen.”

The yield on the Irish 10-year bond added 31 basis points to 9.07 percent at 4:18 p.m. in London. The 5 percent security maturing in October 2020 slipped 1.65, or 16.5 euros per 1,000- euro ($1,367) face amount, to 74.09. The decline extends the longest losing streak in at least three years.

Irish securities slid yesterday as clearing house LCH Clearnet Ltd. demanded its clients place a larger deposit when trading the debt. The Irish spread over bunds reached an all- time high of 652 basis points, or 6.52 percentage points, Bloomberg generic data shows.

Best Bids

The best bid for Irish 10-year bonds was 9.07 percent, or a price of 74.09, while the nearest offer was at 8.61 percent, or a price of 76.55, Bloomberg data show.

“The wide bid-offer spread indicates how thin trading has become, and reflects a lack of two-way market activity,” said Peter Chatwell, an interest-rate strategist at Credit Agricole Corporate & Investment Bank in London.

For 10-year bunds, the difference between the bid and the offer was less than one basis point, the Bloomberg data show.

The euro weakened, stocks declined and the cost to insure Portuguese, Spanish and Irish sovereign debt from default rose to a record.

“All stakeholders must participate in the gains and losses of any particular situation,” Lagarde said during an interview in Paris for Bloomberg Television’s “On the Move” with Francine Lacqua. “There are many, many ways to address this point of principle.”

Portugal Pares Drop

Portuguese 10-year bonds pared a decline which earlier today widened the yield difference, or spread, over benchmark German bunds to as much as 484 basis points, a record, according to Bloomberg generic data. The spread was little changed at 459 basis points. The Portuguese 10-year yield was at 7.15 percent, down two basis points from yesterday.

Peripheral nations’ bonds have dropped since European Union leaders agreed on Oct. 29 to consider German Chancellor Angela Merkel’s proposal for a permanent rescue mechanism that would involve restructuring with losses for private holders of sovereign debt. The proposal is part of discussions to create a permanent crisis facility to replace the rescue fund created in May after Greece’s near-default.

Greek bonds erased declines which earlier today drove the Greek-German 10-year spread as wide as 930 basis points. That compares with the record 973 basis-point premium reached on May 7 before the European Union crafted a rescue package worth 750 billion euros. The 10-year Greek yield dropped three basis points to 11.68 percent.

CDS Prices Rise

The yield on the 10-year German bund, Europe’s benchmark, fell one basis point to 2.44 percent. The yield on 10-year Spanish bonds rose seven basis points to 4.60 percent.

The cost to insure Irish government debt against default rose 20 basis points to a record 617, according to data provider CMA, using credit-default swap prices. CDS’s on Portugal added 17 basis points to 494 and Spain’s rose 12 to 289.

Irish central bank Governor Patrick Honohan said he’s convinced the country will be able to return to bond markets in 2011 as the government steps up austerity measures to restore investor confidence.

Finance Minister Brian Lenihan’s plan involves 15 billion euros in savings over four years to reduce the deficit below the EU limit of 3 percent of gross domestic product by 2014. The deficit will be about 12 percent of GDP this year, or 32 percent of GDP when the costs of the banking rescue are included.

‘Calming Words’

“There is no reason why Ireland shouldn’t be able to go back to bond markets next year,” Honohan, who also sits on the European Central Bank’s 22-member Governing Council, told Bloomberg Television in an interview in Dublin yesterday. “It takes time for markets to be reassured. It takes more than calming words from me or others.”

Spanish bonds stayed lower as data showed the nation’s economy stalled in the third quarter as the deepest austerity measures in three decades undermined the recovery from an almost two-year recession.

Gross domestic product was unchanged from the previous three months after two quarters of expansion, the National Statistics Institute in Madrid said, confirming a Nov. 5 estimate by the Bank of Spain. The economy expanded 0.2 percent from a year earlier, the first annual increase in two years.

Spanish Spread

The Spanish-German 10-year yield spread widened to 215 basis points today from 206 yesterday. That’s still below an intraday euro-era high of 232 basis points reached on June 17.

The Italian 10-year bond fell for a sixth straight day, its longest run of declines since June, before the nation sells as much as 8.25 billion euros of 2015, 2026 and 2034 debt tomorrow.

The spread against bunds was at 176 basis points, up from 166 basis points yesterday. That compares with a peak of 185.5 basis points reached on June 8.

“Italian paper has been under pressure recently on a combination of periphery woes and political uncertainty,” Chiara Cremonesi, a fixed-income strategist at UniCredit SpA in London, wrote in an e-mailed report today. “We expect demand at tomorrow’s auction to be good,” with “support from the current level of spread,” she said.

Bunds have returned 8.5 percent this year, the same as U.S. Treasuries, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Greek debt lost 18.7 percent, Portuguese bonds lost 10.6 percent and Irish securities declined 14.3 percent, the indexes show. “

@Brian lucey. You were more than happy to get in a pissing contest with the bond Market in the middle of a banking crisis and running a huge fiscal deficit. Now we start to worry about ecb funding?

When we talk of the Germans are we talking about the Berlin executive , the Bundesbank or the ECB.
Contrary to most of the Irish establishment here which are creatures of the Anglo Buccaneers I believe Merkel is doing us a favour by suggesting that we can default on our debts if unsustainable.
However I believe that Berlin has limited power , most of the power lies in Frankfurt and they do not want to see their shadow bank sector become secondary to the goverment executive.
We should as a people not listen to the upper political class here which are creatures of Sutherland and the rest of that cabal.

I have no idea if there really is an IMF option on the table. But if Ireland is being offered an pure-IMF package where Greece was apparently forced into a proto-EFSF deal, then it’s unlikely to be a purely technocratic decision. Dominique Strauss-Kahn currently controls the IMF, and it seems that everything the guy does is political. Another possible actor is the Fed, which is currently splashing out money and wants to see a strong global economy … and (ahem) a strong Euro.

@JtO
“I assume that he’s in the job voluntarily. If he agrees with Morgan Kelly’s analysis, then, out of duty to the country, he should resign as Governor, which would force a general election. ”

I still don’t understand why he should resign if he thinks mortgage debt could be a problem or that IMF/EU assistance could be on the way.

@Dreaded_Estate

You are accusing Governor Honahan of not meaning what he says.

The man has used the phrase ‘GREATLY EXAGGERATED’.

It is there in black and white.

So has the head of IBEC.

So have I.

Why don’t you and others take both their comments at face value that they both mean what they say, whether or not you agree with them? You are perfectly at liberty to point out where they are wrong, if that is what you believe. But, it is just a cop-out to say: “Ah, sure, he doesn’t mean that at all. He’s only saying it because he wants to hang on to his well-paid job”.

Given that any German financed ‘bailout’ will likely involve some significant upward adjustment to our corporate tax rate (perhaps not immediately but we would be naive to think that it’s not lurking in the middle distance – ‘do the right thing’ said the German handing the poor Paddy a bottle of Jemmy and a revolver, kind of scenario) one major constituency that will consequently get it in the shorts are the large multinationals HQ’ed (is that a word) in Ireland; is it possible to encourage the combined weight of said Multinationals (those whose profits are materially dependant on our tax rate and transfer pricing wrt profit generation in this jurisdiction) respective balance sheets (Intel, Google, Pfizer, Microsoft, Wyeth, Yahoo and the rest have combined cash and short term investments totalling >$200B all told) to invest some of said funds in Irish Bonds. The deal would be that if the Multinationals stumped up a contribution to support Ireland (their tax haven!! – can’t believe I am writing this) we can face down the threat to their profits with a counter strategy. I accept that this would not be an entire solution but could be a useful contribution to our firepower. Am I mad? Desperate? Deluded?

@ Brian Lucey

As long as the bag of cash from Washington is big enough and cheap enough it’s a runner. Lennys already blaming ‘The German’ plans for debt restructuring for our bonds blowing out.
Honohan is an ‘internationalist’.

Thanks to the NTMA at the very least we have the time to bluff.

@All

Ivan Yates in good form today: “What are the answers? The nation, more particularly the Government, cannot function without credit. The sooner we embrace recourse to the European Stabilisation Fund the better. Monthly NTMA bond auctions won’t recommence any time soon. Temporary liquidity should not be confused with underlying insolvency.”

http://www.irishexaminer.ie/opinion/columnists/ivan-yates/if-skoda-can-successfully-reinvent-itself-so-can-our-clapped-out-state-136053.html

Fascinating website but reading this feels like I’m watching a car crash in not-so-slow motion. For very selfish reasons can someone please advise whether it’s time to cash in what little is left on my BOI & AIB shares. There’s not much left after the hammering they’ve taken and I hold my hand up that I invested for a potential profit but didn’t see the massive downside. It seems that overnight funding is under pressure. Does this mean that the banks will effectively go under in the very short term? I appreciate that most commentators here feel that all the banks are insolvent in the short/medium and long term but there are many, many non economists who have taken an actual hit (rather than a theoretical one) out there that are hoping and praying for some upside. Any advice greatly appreciated.

“Rumour has it that certain European investors are no longer willing to provide Irish banks with overnight funding.”

What is going on here behind the scenes??
ECB and IMF pissing contest???

@Bystander

It’s not beyond the realm of possibility that this has something to do with the IMF’s apparent new willingness to bail us out, I think.

@Ash

What’s remarkable is that Merkel has been talking about “orderly restructuring” provisions since May, and yet Lenihan speaks as if the idea came out of the blue in October.

@Mr. Bond et al.

Surely one real possibility is that the ECB has decided that it’s time to drop Ireland into the lap of the EFSF. That wouldn’t necessarily involve sovereign default or bank restructurings: it could just be a case of the monetary authority throwing the hot potato to the fiscal authority, rather than dropping it on the ground. Of course it still trashes our reputation, but hey: that’s what unwritten implied assumed assurances are worth.

@ All

Fade St, the Celtic Tiger version of The Hills, is about to start on RTE2. Reckon our IMF overlords should htake aim at them first. Then the Apprentice contestants.

Eoin^2
Again, you and i must differ, and bigtime. First, surely, the XFactor creatures must die. THEN the apprentice….

@Brian Lucey

I’m glad you posted to that FT blog to test it’s authenticity.

I have few calls out to see if it is true.

If it is true, then it’s game over before June 2011

I’m just watching Prime Time and it’s a straight fight between IBEC and the City. However, I’m really worried about those poor castle owners. Could the be Pravda/RTE propaganda or a cheer us up exercise?

That castle thing is not going to assist any putative mortgage foregiveness bandwagon.

My undestanding of the overnoight liquidity issue is that it might cause a drawdown of the cash pile that is supposed to last until June 2011. Can anyone confirm?

Surely it’s a FF ruse to get us onside? (like that woman with 10 rentals who rang Joe Duffy to complain about the second home tax)

@Grumpy

Your understanding is correct. The cash pile will be burned in a flash by AIB etc and hence current bond yields do matter.

Ah yes, ace journalism from RTE. The ravaging social problem that is nice ordinary middle-class people who live in castles and are having trouble with their castle-sized mortgage.

If they’re the middle, where does that put all us non-castle dwellers?

Of all the weird moments there’ve been in the last few years, this is pretty close to the top…

@grumpy
It all depends on whether we are on course to stiff the ECB… in the normal course of events, the Central Bank acts as lender of last resort. If you are making side-deals with the IMF to stiff the Central Bank, well, things might get a little trichy [sic].

Ash, grumpy
So, banks now locked out of even shortest term
Liquidity? And final symbiosis of banks/state complete therefore? Goddam…

Indeed. I should get some confirmation tomorrow but it would be completely off the record. I’m not sure how I could post it.

now they are polling to see if we will default-from Reuters Sydney based Ian Chua

Indeed, two thirds of economists and bond strategists polled by Reuters on Thursday believe Ireland will seek international rescue funds before the end of next year.

The 10-year Irish government bond yield has rocketed to 9.2 percent, from as low as 4.4 percent earlier this year, making it the second highest yielding euro zone bond after Greece’s 11.7 percent. The bid/ask yield spread for the Irish debt has also blown out, suggesting the market is freezing up.

Turnover according to ISE site is quite respectable so the freezing up suggested seems off.

David O’Donnell

“This is turning out more like The Cube than The Matrix!”

So true.

Fear. Paranoia. Suspicion. Desperation.

“No more talkin. No more guessin. You gotta save yourselves from yourselves.”

“We haven’t been moving in circles the rooms have”

26 rooms high. 26 rooms across. 17576 rooms.

Which one has the Anglo passwords?

By the way. How do you turn a corner if you’re going around in circles?

@ceteris

Big spreads and volume mean the market makers make a lot of money unless they can’t keep the book balanced. You don’t deal unless you have determined client orders – taking a firm view. If the books stay balanced it means there is determined position taking/closing both ways.

You can be fairly confident that the “economists” polled have even less idea than we do.

David O’Donnell

Not looking good is it.

Merkel repeats that risk takers must take losses.

Cowen repeats that the “markets” are misinterpreting what Merkel is saying.

Lenihan denies that “tall Hungarian with glasses” is lurking in Government buildings.

http://www.independent.ie/national-news/budget/news/lenihan-scotches-rumours-about-tall-hungarian-2415792.html

You wouldn’t happen to have a spare application for membership of the Korean Workers Party?

http://news.xinhuanet.com/english2010/world/2010-10/11/c_13551474.htm

Failing that a six month contract in the engine room of the SS Enterprise.

You can have Seven of Nine.

whocouldanood?

Joseph Stiglitz in Chicago whose comments will reflect the thinking of learned and respected economists everywhere. Stated today that the big problem is that the party in power since 1997 helped create the problem and are now an impediment to any solution. An early election is now a matter of urgency.

You will find this in the Independent.

“Investors have doubled their borrowing of Irish government bonds since July in a sign of greater activity by short sellers, who bet on a security’s decline, according to Data Explorers Ltd.”

“There was a similar increase earlier this year …ahead of the Greek bailout,” Will Duff Gordon, senior research analyst at Data Explorers, said in the statement. “People lend and borrow bonds to raise cash, but it is far more likely that they would use German or U.K. bonds for this purpose.”

http://www.businessweek.com/news/2010-11-11/irish-bond-borrowing-surged-on-short-sales-data-explorers-says.htm

We are about to go the way of Greece and can do nothing about it. Portugal next. Can the ECB even help at this stage? Who is shorting us, Golden Sacks, Buffet, Soros, Buffet/Soros/Sacks Hedge, China? We thought we were paddling in the med but in reality we were standing in a pool of warm stagnant water; someone has pulled the plug and we’ve been caught fiddling with ourselves.

Brían ó Cualáin

“Who is shorting us, Golden Sacks, Buffet, Soros, Buffet/Soros/Sacks Hedge, China?”

I think you left out the FED.

The biggest hedge fund of all.

“Trichet’s idea of a solution is “don’t talk about it and the problem will go away”. Well it won’t. Nor will “extend and pretend”.

The US made a serious mistake in not making bondholders share the pain in US bank bailouts. As a result, US banks are still undercapitalized, crippled, and unwilling to lend. The reality is there is no painless solution no matter what Trichet, any central bankers, or any politicians think.

A further reality is that Ireland made a huge mistake in agreeing to horrendous austerity measures instead of just plain defaulting. That would have forced the restructuring issue to the forefront, long ago.

And as long as we are talking about realities, here is an obvious one that Trichet does not seem to understand: What can’t be paid back, won’t.”

http://globaleconomicanalysis.blogspot.com/2010/11/irish-portuguese-spanish-bond-whacked.html

@ Eoin,

“not sure what your point is? My belief was that the EU would not allow senior debt to be defaulted on, and that we had to comply with this wish.”

So was your personal view that snr bank bonds should have taken a significant hit?

Ma Merkel is doing an excellent job of running down the euro and inviting the OPM crowd to “participate” their client funds in dodgy bonds!

Seriously! Share the risk? Yeah, right! The end is to devalue the euro and it is doing rather well, based upon a few percentage points of economies that have low cost over the entire EC economy. There will be pressure on new members to the EZ so EC seems more accurate, than EZ?

If needed, other clowns can be brought to the stage for the delectation of the market. The Jokers are being held in reserve for the long awaited derivatives crash!

@bondeoinbond et al – assume you refering to the ‘Shanghai on the Shannon’ idea? Its fantastic, the local chinese restaurant chap in Athlone called over to mary o rourke with an idea a few of his mates have to build a warehouse (and rather worryingly – a fire startion) in athlone to display ‘stuff’ people in europe might like. Quick as lightening the bould mary was on to her son, brother, nephews and all other family members to sort it out, buy up the land on the cheap in anticipation, etc as only the well oiled (greased) wheels of our elected officals can do. Mary confimed that her indepth research of these investors shows that they are ‘very successful chinese business men, who employ thousands of chinese’. Her only concern that they might like to ’employ thousands of chinese in their warehouse in ireland’ as well, but lets not worry about that. The Chinese government confirmd they know nothing about it. So…… alls well that ends well .. all that stressing and fussing about nothing 🙂

Ahura,

does it matter what anybody’s personal view view. EB et all, including me,were of the view that seniors would not be haircut at the behest of the ECB. In addition, some of us took the pragmatic view that if you defaulted on a lender, you were unlikely to receive refinancing in the near term.

Morality does not come into it.

@Veronica

“FG face the most difficult election”

They do it onto themselves. It is not irony. Micheal Noonans handshake on todays indo with Brian Lehnihan, his capitulation on the greenies/FF plan to PREAGREE an assault on social welfare via agreement to cuts says it all.

The only party making any economic sense at the moment is labour.

@ Veronica

By the way i am not suggesting there should not be cuts, they are essential part of the solution.

Micheal Noonans approach of pre-agreeing cuts of 7.5 bn, a couple of days after being shown the books is however close to farce and shows both FGs political nativity and lack of understanding of Economics. Why isn’t he DEMANDING that the INBS/Anglo bondholders pay something for the misguided risks they took as no lesser person than Merkel is requesting rather than getting people on social welfare and made unemployed by this crisis to pay. There is a lot of votes and support for chasing the bondholders, mine for one, even if it leads nowhere. There are no votes in the narrow minded view that we should all wear hair shirts because of the gambling habits of our great ejjits .

Ex Chancellor of the Exchequer, Lord Lamont treating us rather kindly.

Audio clip.

news.bbc.co.uk/today/newsid_9182000/91828.stm

@michelle norris.– that seemed creepy and petty. If someone wants to be annon, let them. Don’t lower the tone by exposing someone who speaks honestly , albeit ridiculously, the debate is too important right now. Aren’t you busy enough?

Veronica.

Regardless of Labours’ budget stance demanding less than 6 billion in cuts they have ,to my knowledge ,signed up to cutbacks consequent on bailing out bank bondholders via the Sovereign.
The Sovereign is defined in the Irish Constitution as the Irish people.

Neither labour or FG have any mandate to pimp out our sovereignty and accept as de facto FF’s treachery.
If either party campaigns in the election without detailing why they accept we must pay off all bondhoders then they hide their true intentions and will have no true mandate.
In my opinion FG/labour are about to nosedive into a trap.People will reuefully pay up for their own mistakes but will deeply resent paying for others mistakes and corruption.Paying back bank bondholders is a tax on the Irish people for the banks/FF’s corruption and criminality.

Correction to link.
Lord Lamont- Ireland will be bailed out BBC Radio 4 audio clip.

news.bbc.co.uk/today/hi/today/newsid_9182000/9182818.stm

Left unsaid is the bond holder haircut which in these circumstances is in the range 33% to 50%. Lord Lamont is a seasoned PR practitioner.

Comments are closed.