2015 Government Bond Post author By Seamus Coffey Post date January 25, 2012 The NTMA offering circular for the 4.5% 2015 government bond can be read here. Update: NTMA release on the results can be accessed here. Categories In Uncategorized 37 Comments on 2015 Government Bond ← Interest Rates on Promissory Notes Not the Key Issue → Final Programme for Irish Economy Conference 37 replies on “2015 Government Bond” They will purchase the 4% Treasury Bond 2014 at 98.35 and the coupon on the new bond maturing 18 February 2015 will be 4.50% and priced at 98.20. We willknow how they get on at 4pm I suppose. 25bps pick up FYI. Kinda stingy. They’ll probably get some of them off as a thank you for the unguaranteed Anglo bail out. Why oh why are we back at this bond malarkey? It’s bulls**t. Sovereign debt markets in non-war situations are a joke. Michael Noonan’s prolly been promised some nice bond buying action by Draghi. I had better stop Im getting angry now. Why oh why are we back at this bond malarkey? It’s bulls**t. Sovereign debt markets in non-war situations are a joke. You think we should stop borrowing immediately? What about repaying existing bonds? @Boin. Eoin Bond 25bps pick up FYI. Kinda stingy. What was the expectation and will it get away anyway? @ Seumas Coffey Full marks for this riposte to DMcW! http://www.independent.ie/opinion/analysis/seamus-coffey-david-mcwilliams-analysis-of-private-debt-is-stark-but-it-also-100pc-wrong-3000117.html @ DE Expecation? Well we barely had time to think of one! But 40-50bps seemed more like what might have been hoped for. It’ll get away, suspect maybe 2bn, but what’ll be interesting is if they try and tap it going into next LTRO. As i said on the other thread, everyone else is playing this game, why not us too? @ DE re Seamus Coffey ooh, didn’t see Seamus riposte, the original DMcW article had me rolling my eyes…good work Seamus @ Dreaded Estate Look it doesnt make sense. A man earns €400 per month. He spends €500 per month. Does he: a) borrow money to cover the €100 b) cut the €100 or c) seek to earn more or d) a combination of all the above I think he can only borrow if he can invest in something that will increase the money he takes in to a figure above his deficit plus interest repayments. If he cannot do this he has to cut spending ASAP. Irish govt shouldn’t borrow anything just to pay off pre existing debts. Easy solution – coordinated multinational action – cut deficits and default. I hate the bondmarket @ BEB Bet 3bn. Looking for the headline to distract from Anglo. So we’ll be repaying a portion of existing debt for longer at a higher price? This is good news? Or am I missing something important here? 3.5bn issued. Yes, its all about distracting from Anglo…. @ DOCM, B.EB I was too was rather annoyed reading it. It was a simply a matter of pasting together a number of comments from a thread here to get the piece together. I probably should have tried to make it more reader friendly and eased up on the use of numbers but the headline writer got the main message across which is hopefully what people will take from it. @ John Ihle it costs them 25bps for an exctra 13 months of funding. Yield curve accounts for around 10bps of that, so only 15bps “credit/liquidity” premium. Worlds cheapest extension. Seriously. @ Seamus Coffey Oops! Sorry for the mispelling. Ireland’s decoupling from Portugal seems to be complete. http://www.ft.com/intl/cms/s/0/5505261c-474d-11e1-b847-00144feabdc0.html#axzz1kJcRavmS Just seconding (thirding?) Mr. Bond’s and DOCM’s vote of thanks to Seamus Coffey. We need more of this – a lot more. And full marks to the Indo for publishing it – and to the sub-editor for departing from the usual practice and conveying in the header the essence of the text. But the difficult task is to get any of this into the heads of the senior politcios and their special advisers and senior officials. They seem to have reverse bullshit filters fitted. They’ll swallow any nonsense that vested interests will whisper in their ears behind the scenes, but they will repel anything in the public domain that’s based on facts, evidence and analysis. Households have gross debt (€192.4 billion in Q2 2011 according to CBOI) but they also have gross financial assets, so that:- “Irish households’ net financial wealth, which does not include housing assets, stood at €106.9 billion or €23,852 per capita at end Q2 2011. This represented a slight decline in net financial wealth of €192 million or 0.17 per cent over the quarter and marked the first fall in household’s net financial wealth since Q1 2009.” http://www.centralbank.ie/press-area/press-releases/Pages/QuarterlyFinancialAccountsforIrelandQ22011.aspx http://www.rte.ie/news/2012/0125/ntma-business.html And there’s the headline linking the two Very predictable and a really rubbish interest rate. This is what happens when you pitch a school teacher against a child of the Squid @ Eureka “Very predictable and a really rubbish interest rate.” Explain why its rubbish. Think everything through fully before you answer. @All Would it please be possible to estimate how much EXTRA interest will now be paid on this bond? It seems to me that we have just increased our debt burden again. This is not sustainable. “Ireland needs to pay down or see an increase growth income that will bring the debt ratio down from its current four to below three times national income. This is a difficult but not an impossible task.” Ireland is not a person. Cannot pay a brass penny. Payment can only be made by real persons, with real unencumbered incomes. Now who would those persons be? ” …. an increase in growth… ” What growth? This ‘growth’? “Over the past three years more there has been a reduction of more than €20 billion in household debt. Repayments and write-downs have seen an even larger reduction for business debt. These repayments and write-downs are going to continue. ” Repaying debt (destroying money that otherwise might be used for consuming) at this rate, smacks of some element of panic. “However, Irish household debt is also very cheap.” Indeed it is if you can pay. But if your income is …. !!! Seamus, your analysis may be valid, but the real picture has a lot of pieces in it. And many are as black as the Ace of Spades. Deficit budgets (aka: borrowing to pay day-to-day expenses) have to stop, and stop soon. This is a political predicament which is most unlikely to be attended to. The world won’t stop, the sky won’t fall. We will just have to accept a much lower standard of life. @ Bond Its rubbish because we can’t afford to pay it back. How is this 3.5 billion going to become 3.whatever billion in this economy? You beat me hands down on the maths but I don’t see the logic in taking out loans you can’t pay back That’s all. @ Eureka the loan is already out there. Its been out there for a long time. We now have longer to pay it back. @ Tim an extra 0.25% per annum, for an extra year’s worth of time to pay it back. Its a good deal unless you believe (or, given the redemption then, ‘know’ for certain) we can borrow more cheaply (we’ll still have a deficit regardless) in 2014. @ Bond But even with the extension we won’t be able to pay it back. @ Eureka The ability to repay is linked to the ability to rollover. Thats how modern economies work. Almost no one actually “repays debt”. We rolled over our debt today, with a large take up and at a cheap rate. It was an unquestionable success. @ Bond. Eoin Bond: Rollover. Nifty. But the interest payment? Please don’t tell me that is rolled-up into the rollover! That’s Biblical! The interest payback has to come from somewhere – printing? or production? I fancy it may be the former. Interesting. Eureka, That is the beauty of sovereign debt. You don’t pay it back , you just roll it. Today was a bit like Sam Johnson’s dog walking on its hind legs. Not that it was done well but done a all. Just be thankful tha the gnomes of Zurich extended the overdraft for a year at little cost. @ Bond “Thats how modern economies work.”….or don’t work “It was an unquestionable success.” No it wasnt. I’ve had to pay off Fitzies loans for this to happen and watch maternity hospitals go short midwives. I respect your view but we will never agree. @ Eureka “I’ve had to pay off Fitzies loans for this to happen and watch maternity hospitals go short midwives.” Not sure what the first part has to do with today’s rollover/extension, and reckon the second part would only get worse if we had your wish and we cut the budget deficit to zero overnight. @Seamus Seamus boy that private debt changed the very structure of the Irish Hinterland. It had very real world physical effects outside interest rates. Besides we were paying those higher interest rates when the overall credit /oil supply was growing. I just see interest rates as the level of extraction anyhow , even at near zero much of the Irish “investment” is a dud . The Irish landscape is a giant consumption sink now – its going to be very hard to push it into surplus because modern Ireland unlike Edwardian Ireland was not designed that way – it was designed to consume Saudi Arabian Surpluses while also providing a safe quiet tax light home for rich European & American investors. That was the post 1957 deal was it not ? We could have written much of the malinvestment off via private debt forgiveness a few years ago and preserved the value of goverment money – but as I think you say yourself that bond boat has sailed. @ Bond …because we were told we wouldn’t be able to return to markets without bailing Anglo out And We can’t afford to borrow any more to maintain this deficit. Slow protracted certain death vs radical gamble with chance of recovery (cut deficit, default and start again) As I said, we’ll never agree. Without the ability to print our own currency taking on debt and committing to austerity will only end one way I think As a confirmed sceptic on the Irish economy or more specifically on Ireland’s response to Ireland’s economy, I have to say that this bond issue/swap is good news. A rate of a little over 5% is still high but bearable at least for a portion of funds. The strategy of spreading the debt maturity was good and I am surprised they sold so much. Maybe there are players behind the scenes but at face value, it looks very good for the current time and the current outlook. @ All The whole debate can be summed up in the comment by Seamus Coffey; “Ireland needs to pay down or see an increase growth income that will bring the debt ratio down from its current four to below three times national income. This is a difficult but not an impossible task.” What is quite puzzling is that while the markets find this idea credible, as the decoupling of Ireland from the case of Portugal and the nifty and successful operation by the NTMA today demonstrate, quite a substantial body of opinion in Ireland evidently believes that it is not. As the post above by TC reminds us, the net financial wealth of Irish households is very high. Per capita income in terms of GDP is much higher than in Germany (although the figures are distorted by the earnings of the MNC sector which do not accrue to Ireland). No doubt, someone can supply the figures. But we seem to wish to look in every corner for excuses – and discuss every irrelevant aspect of the Irish predicament – rather than face up to what needs to be done i.e. to structurally reform our economy to remove rent-seekers and the rent-seeking activity which still impacts greatly upon it and adds a level of difficulty which may make the task of recovery impossible. Compared to the road that other countries in difficulties have to travel, the journey is not long but the sectors to be tackled, as Paul Hunt has pointed out many times, are the most entrenched. One essential step must be to break the link established by the Buckley Report between the salaries of public servants i.e. employees of the state and public representatives i.e. politicians that are representatives of the people who happen to be paid from the public purse. (To hear how some of the latter talk and to see how they behave, one would imagine that there was no difference between the two). Without a return to previous practice in this area, an appropriate re-balancing of the levels of pay in the public and private sectors will not happen. This is, however, a sine qua non for recovery as the current imbalnce is the biggest form of rent-seeking in terms of its budgetary impact. @ All With regard to the MNC sector, there may be changes ahead in the US. http://www.bloomberg.com/news/2012-01-25/obama-said-to-be-readying-corporate-tax-overhaul-with-2013-budget-release.html DOCM, It is election year and nothing will get done. Obama will get nothing through Congress. We will have to wait and see what President Romney does. @ Tullmcadoo I agree! I raised the issue because, to my mind, the dominance of the American MNC sector in the Irish economy needs to be factored in to any in depth debate (including the unquestioning belief that this dominance is a good thing). Colm McCarthy states in the thread he has just opened on the general issue of Ireland’s reurn to the markets; “Alternatively you can insist that Ireland can (sustainably) ’get back in the market’, and stay there, in size, at higher yields. This is entirely conditional on economic growth resuming quickly and at decent rates. The debt sustainability analysis in the IMF staff report to the executive board should issue in a few weeks and will be a must-read”. I seem to recall graphs showing the rates Ireland and other peripheral states were paying before the markets made the blind and mistaken assumption that within the euro Greek risk was the same as German. Are we not going back to the status quo ante? To be followed on the other thread! Paying a higher coupon now makes sense if and only if you believe that the alternative is that interest rates will go up and you will end up paying more later (i.e. comparing the two alternative scenarios in terms of discounted cashflows). The whole effort, with its odd extension period (13 months), is clearly designed to dovetail with the next ECB 3-yr LTRO offering. This can be viewed as subsidizing the purchase of Irish (and other) bonds since banks are pretty much guaranteed to make money on the deal. Since there’s a “special offer” available, it likely makes sense to take advantage of it. What the size of the coupon increase, and the size of the take-up compared to what was available, means, I’ll leave for others with more insight to assess. @ Joseph Ryan ‘The strategy of spreading the debt maturity was good and I am surprised they sold so much.’ All part of Draghi’s 500bn I guess. Our banks really have the Green Jersey on now. Comments are closed.