Trading Volumes in Irish Bonds

There has been ongoing interest in the yields available on Irish government bonds.  Using actual trades Bloomberg calculate an implied 10-year yield.  This surged to over 14% in the run up to the Brussels summit on the 21st of July.  The yields have fallen on almost everyday since and yesterday finished at 9.5%.

However, little attention has been given to the trading volume on these bonds.  Here is a little insight into trading volumes from the start of the year to August 9th.

For most days the trading volume is very low.  The average daily trading volume for the year is just 0.28% of the total number of bonds outstanding (c.89.6 billion).  For the January 2014 bond the average trading volume in 2010 was six times larger than it has been in 2011.  Trading volumes in Irish bonds in 2011 have generally been very low.

There has been an increase in the time since the EU summit when  yields also began to fall.  The average daily trading volume has been 0.82% since the EU summit.  The other occasion when trading volumes increased slightly was the first two weeks in April.  This was immediately following the March 31st publication of the bank stress tests and again was a time when bond yields were falling.

47 thoughts on “Trading Volumes in Irish Bonds”

  1. What can we infer from the increases in trading volume? Is it accurate to say that the fluctuations in trading volume are a good indicator for the interest in Irish bonds?

  2. @ Seamus

    Is that spike at the end of July due to the ECB purchase of Irish and Portugese bonds they were mentioning?

    Colm Mccarthy had made the point in one of his Sindo articles a few weeks ago that when it comes to bond yields you can go up on an elevator but must come down the stairs. But I guess now with ECB interventions we can have high speed great glass elevators going in all directions.

    It doesn’t look like there are many other buyers
    http://www.irishtimes.com/newspaper/breaking/2011/0804/breaking37.htm

  3. The increased flow, and the adjoining drop in yields, suggest that real investors are starting to return to the fray, a very positive signs for the chances of Ireland eventually trying to return to the primary markets. Much more needed, but a solid start. In line with Philip’s article on the other thread, the government needs to act boldly to take advantage of this window of opportunity to show their committment to reining in the deficit.

  4. In equity analysis, trading volume, and origin analysis is considered an essential counterpart to raw price analysis. Origin analysis has always been tough to crack. I think a case could well be made for making such a public good for sovereign bonds. Literally numbering each bond, and requiring the beneficial owner details to be up to date 3 days after any trade.

  5. @Seamus, just for comparison, what do Trading Volumes look like for, say, Belgium, or Australia? I’m struggling to get a sense of whether a change from 1 to 1.6 is significant or not given current international norms.

  6. @Seamus

    Do you have a souce link for Irish bond yields.
    I can get the Irish 10 year on Bloomberg but is there any broker / Stock exchange source for Two year bonds etc.

    It must be making excellent sense for the Irish government to buy some of these bonds, if they have any spare cash at all.

  7. @ ALL

    FRENCH BANKS GETTING SLAUGHTERED – SOC GEN DOWN 20%,

    RUMOURS ONE OF THEM IS IN TROUBLE

  8. @Seamus

    I once did a lot of work on volumes, but don’t understand what you are getting at here. Can you clarify?

  9. Are all Irish bond transactions including foreign OTC captured in the volume numbers at the ISE? I thought bond trading was decentralised.

  10. Very possibly a dumb question but how does the ECB buy bonds? Does it have to print money to purchase them?

  11. French 5yr CDS soar …………..

    Yield over 3% …

    Double it – EuroBonds here we come …..

    In the real world – 25 beds closed in Limerick Regional Hosp …. markets fry and people die … thankfully Mallow Hospital saved me life before the French banks closed it down ….

  12. @Bond/jagdip
    re: Soc Gen
    We should not be surprised. Any bank that can allow a single trader take positions that will will lose it up to 5 billion must be running one hell of a gambling casino. Maybe all the banks have all been run like casinos. The stock falls of the last two weeks must have turned a lot of positions very sour indeed.

  13. @ Ossian

    still has to settle somewhere. The OTC element means that the pricing is just less regulated and you won’t see what prices all the volume went through at like you can with equities.

    @ Jagdip

    if they have losses (a) i think they’re be “big losses” rather than “catastrophic losses” (they have 28bn in capital) and (b) the stress tests can’t account for derivatives losses really. Suggestion that gold and/or Swiss Franc exposures could be involved. That said, i reckon its a spiv rumour and any losses won’t turn out to be the real deal (ie more than a few hundred million).

  14. New suggestion is that its actually a French insurance (GroupAMA) company that owns a chunk of SocGen thats in trouble….

  15. @Eureka

    re ECB and bonds.
    They print the money, but perhaps not literally. But they do have to transfer funds into the bond seller’s bank account. So if these people have large minimums (aboit 100 million) on the ATM cards , they could withdraw the cash.
    The ECB of course object to buying bonds. The reason they object to this is that the sellers of the bonds then have cash in their hands. The historical assumption is that they will spend the cash on relatively scarce commodoties and goods thereby driving up the price, ergo inflation.

    Not being an economist, I think there are flaws in the argument, particularly since globalization and even more particularly since the sheer incompetence of the economic governence of the Western economies has most people so scared that they are unwilling to spend the cash they have, never mind the additional cash being put into the system.

    Either way, to use a metaphor, the Heidelberg printing presses will on 24 hour shift for the next few weeks.

    But I know nothing about this area so it may be better to rely on a more qualified contributor to respond to your question.

  16. CetPar,

    I was trying to figure out how you could deny “all rumours”. How do we know that. It is not as if they listed every rumour and then denied each of them.

    Apparantly French CDS spreads are widening but cash bonds spreads over bunds are stable.

  17. All the rating agencies reaffirm French AAA. Trading at 3.05 or 87 bp over 10 yr Bunds.

    So no problem there….

  18. @Tull
    That’s according to Bloomberg quoting a SOC Gen spokeswoman who refused to go further.

  19. @ceteris

    I was spreading a rumout that SocGen had very tight risk management since Kerviel, that their prop trading made Goldman’s look amateur and that they were not insolvent – that was Unicre….Ooops!

    Guess I must have been wrong

  20. Anyone noticed AIB today. Bloomberg price =5 cent and ILP =3 cent.
    I suppose they can’t go much lower.
    It seems banking everywhere is being hammered.
    With the CAC off 5.45% and the Dax off 5.13%.

  21. @Grumpy
    You shouldn’t have. My Bloomberg is showing MIB off 6.65% but it won’t update the movers and industries. You must have overwhelmed the poor computers. Never mind ..the ISEQ is only off 19% ytd versus 29% for the MIB.
    Silvio won’t be pleased,

  22. Irish bond yields continue to come in despite the chaos going on elsewhere in the markets. Hedge funds buying I’ve heard and possibly ECB dipping its toe in as well. Wilbur Ross has been putting out a lot of positive noises about Ireland recently which is helping sentiment.

    You can see yields here on the bloomberg public access website although I think prices can be a bit stale there.

    http://www.bloomberg.com/apps/quote?ticker=GIGB2YR:IND#chart
    http://www.bloomberg.com/apps/quote?ticker=GIGB10YR:IND#chart

    Anyone have any opinions on the probability the Irish 2 year bond (April 2013) will be paid back at par? I’d guess at least 75% personally. With a ytm of circa 9% right now, that’s a hell of a spread over the German 2 year (prob of being paid at par >99% in my opinion).

  23. The daily trading volume/outstanding = 0.28% sounds very low but what is the effective “free float”? If a very large proportion of bonds outstanding are collateral for repurchase agreements then they are not available for trading. Also, trading volumes across securities tend to be high or near-zero there is not that much of a middle range. There tends to be a corner solution equilibrium where either a security is traded often or it is traded almost never.

    Despite all that, it is very useful analysis to see that the near-zear turnover has ticked up slightly – a modest positive sign in an unending torrent of bad news.

  24. @ All

    Herewith a link to Euractive illustrating the continuing divisions in the EZ.

    http://www.euractiv.com/en/future-eu/eu-divided-meet-discuss-news-506950

    There was also an interesting interview with the long-serving minister for finance (acting) of Belgium in Le Monde which seems to suggest that the EZ, and Europe, has arrived at a make or break moment. He (i) points out the incongruity of undertaking not to allow any bank to fail but not doing likewise for states (ii) supports the call of Trichet for further budgetary integration and the appointment of a European minister for finance and (iii) dismisses the SGP, even strengthened, as an effective instrument.

    http://www.lemonde.fr/europe/article/2011/08/09/l-europe-ne-pourra-eviter-le-debat-sur-son-integration-budgetaire_1557545_3214.html

    Developments in the foreseeable future seem likely to test how “Continental” Ireland really is.

  25. @DOCM

    Developments in the foreseeable future seem likely to test how “Continental” Ireland really is.

    Or what kind of ‘Continentals’ the Irish are. One would not want be part of just any old ‘continental arrangement’, regardless of what direction it was going in.

  26. ‘French president Nicolas Sarkozy has cut his holidays short amid concerns that France could become the next AAA-rated country to get downgraded.’

    http://www.irishtimes.com/newspaper/breaking/2011/0810/breaking2.html

    Poor Nicky – me vichy-bank bled hungry heart bleeds … shur the leetle enfant terrible needs a break from bashing the paddies and bombing the poor berbers in north africa … s’pose Christine an the IMF will have to step in – now that Angie is indisposed and in a bit of a huff hesself ….. touch of the ‘continentals’ all round I’d say … now where did I put me copy of Carlyle?

  27. @David O’Donnell

    Maybe some very powerful peripheral banks and institutions that are holding core country and core bank debt are sending a message.

    Myself, I think that when Deutsche Bank got rumbled selling billions of Italian bonds about two weeks ago, the game was up. When Prodi penned his public protest letter, the peripheral fight back started. And it is going to be a very ugly fight until countries begin to see sense.

  28. @ Carson
    The two year has come in a long way but it might now be too late as I reckon you need the bigger yield to cover the potential downside. The big danger now is the whole Euro thing implodes.
    On the other hand rates are at all times low on good debt with the US selling 10yr today at 2.14.

  29. @Joseph Ryan

    The Big Black Hole was, and probably/almost_certainly still is, in the Core Banking System – whatever the socalled ‘stress tests’ reported – and nobody, apparently, understands knock on effects of all these parasitic derivates. Peripheral sovereigns were deemed expendable – as we know too well locally – in favour of core banks. Democracy demands that Sovereigns, somehow, win this ‘ugly’ battle. Still worth fighting for ….

  30. @ Joseph Ryan

    The point I was trying to make, although obviously not very clearly, is that the position of an English-speaking “island behind an island”, as the French like to describe Ireland, whose decision to join the euro in the first place was problematical, will become more “pointed”, so to speak, in the scenario sketched out in all seriousness by Reynders (representative of a divided country with major disputes regarding who carries responsibility for excessive levels of sovereign debt).

    I think one development to watch is the idea floated by the new leader of the FDP.

    “We need a new stability pact for the euro,” Roesler told Reuters. He added that such a body would ensure the long-term stability for the euro, and said he would present a proposal – which includes introducing a German style debt-brake – to his EU counterparts at their next meeting.

    Roesler, the leader of the German junior coalition partner the Free Democrats (FDP), had briefed Chancellor Angela Merkel on the proposal, a chancellery source said.

    A spokesman for the German finance ministry said that the proposal had not been coordinated with the government, however, despite earlier assurances from Roesler that it was a government proposal”.

    The FDP is below the threshold of 5% for gaining party entry to parliament. It seems that its new leader has rediscovered the worth of the party’s former EU credentials. The idea of a new body, a “Euro European Council” or whatever, could prove useful to German politicians on the right trying to persuade their electorates to accept action by Germany which should never have been put in doubt by them in the first place. The politicians in question are influenced by the fact that the DAX is falling as fast, or faster, than other stock exchanges despite all the piffle about Germany economy powering ahead on its own. It cannot continue do so without the European consumer.

    I suggest to those that way inclined that looking into the tea leaves of the bond markets will not, in fact, prove very enlightening except in terms of broad trends which are obviously in the wrong direction.

  31. @DOCM
    “I suggest to those that way inclined that looking into the tea leaves of the bond markets will not, in fact, prove very enlightening except in terms of broad trends which are obviously in the wrong direction”

    Don’t know about the wrong direction….apart from the obvious ones (pigs)
    All long term bond yields are at lows and the US,despite downgrade, sold 32b of 10 yr at a yield of 2.14%

  32. @ CP

    lower bond yields are ultimately a sign that markets are predicting a recession, and a pretty long and severe one at that. Its definitely not a good thing.

  33. @Bond, Eoin Bond
    …but the market is often just wrong or trying to manipulate an outcome.
    I wonder if this is the kind of climate where central banks can print money and not generate inflation. The Fed seems to have cottoned onto this. The ECB is being forced into accepting this.
    The major flashpoint going forward could be China with food riots if inflation gets out of hand. What an odd situation it will be – weak dollar and strong yuan. It’s as if we’re heading toward a solution despite ourselves.

  34. The ISE link that Eoin Bond posted earlier in the thread is the best guess anyone can get with regard to daily t/o in IGBs. It’s not by any means a full picture, nor can it be viewed even as a representative constant proportion of daily volume. It merely hopes to reflect business in IGBs transacted by accredited market-makers/primary dealers.

    If, for instance, Morgan Stanley were to transact a chunk of business with RBC – or a hedge fund, or other institutional client, for that matter – it would not be captured in the ISE figures.

    Daily t/o in 2011 up to 3 weeks ago averaged €200m, but has shot up since then as yields have fallen, along with spreads tightening. The ECB impulse to both is only days old, and came as a surprise. The turnover increase, and yield compression, well precede any ECB involvement.

    Talk has been of hedge fund involvement on the buy side. Whether this buying (if true) represents an outright vote of confidence in Ireland, or is one leg of a spread play vs some other euromembers, is anyone’s guess.

  35. @ Aiman

    i’m hearing its ‘realer’ money than just hedge funds. US long term buyers involved.

  36. As Aiman notes, the data above unfortunately cannot be viewed even as a representative constant proportion of total daily volumes. But I wouldn’t say either that the data is the best guess possible.
    More importantly, it is vital that liquidity (narrower bid asks and depth) returns to markets for there to be some sense of normality. Often people seem to think it just suffices to get yields on bonds down for normal trading to resume. However if bonds at whatever yield (high or low) cannot be traded in much size and at reasonable cost, then investors understandably shy away (and whatever the underlying fundamentals or their perception).
    It is also seems to be commonly believed that when we see wild swings in prices, that that there were buyers or sellers. But that there can be moves with little or no flow.
    It has been disappointing to see that there has been little apparent consideration given to foster the conditions in which liquidity can flourish. The structure of markets is a long standing challenge for Europe in particular. USTs are not in the same camp (if for many different reasons).

  37. @Seamus Coffey – great that you’re drawing some attention to the Irish bond market, but I’d have to disagree with your statement re Bloomberg, and their calculation of the generic bond yield data. It isn’t drawn from observed trades, rather it is taken from dealer quotes on Bloomberg’s own proprietary trading system.

    As Ciarán O’Hagan has alluded to, bid/offer spreads in IGBs (and many other non-German eurozone bond markets) have widened significantly, in the last 18/24 months. The “true” clearing level on any given day can be extremely difficult to determine – a 2 point bid/offer spread in the 10 year area equates to c.20 basis points in yield, for example.

  38. @Bond @ co

    There was quite a bit of interest when yields were nearing their high, from new sources – even overseas retail investors were very keen.

    The idea was that the yield had got so high that the bonds were almost irresistible for all sorts of institutions and individuals who were up for a punt. Lots (not by any means suggesting all) of stale holders didn’t want to know, but a different proposition via the high yields, was of interest to some new buyers.

    The problem is that if things get cheap enough they will get bought, but for the state, the buyers it requires are not the guys tempted to buy by a 10% yield.

    The point made above about people assuming there is trade when prices are marked around is very true – even Philip L’s post about “Do more, quicker” blames “momentum trading strategies”.

  39. @ grumpy

    the guys buying recently are willing to buy more, at lower yields, should Ireland manage to get back to the primary market. I believe they are very much in it for the long haul.

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