Journalists! Bonds are not Bills! Bills are not Bonds!

Today the NTMA announced Ireland will resume treasury bill auctions, the first since September 2010. This is a really good thing.

But this does not mean Ireland is “back in the bond market”, with all the baggage that phrase has for Irish people these days. We’re back in the Bill market. Journalists in particular should understand the difference between bonds and bills.

While both bonds and bills are debt obligations, in other words when you buy either a bond or a bill you are lending your money to the Irish government, and both are auctioned, bills are used as short term liquidity instruments, typically repaying the bill buyer in 3 months or 6 months or something like that, while bonds carry much longer maturities, usually 2 years, 5 years, 10 years, even 30 years, and are typically used to pay down other maturing bonds or to finance state expenditure. See these lecture notes, slide 218 in particular, for more details. Update: these ones are way better.

Thus Bills differ in their form and their usage, it doesn’t make sense to confuse them. While today’s announcement is a good sign, we shouldn’t get too excited over their issuance. Portugal has been issuing T-Bills throughout its time as a programme country, and even Greece got some away in May.

For these reasons we shouldn’t read too much into the yield and bid to cover ratios of these bills. It’s still a positive first step, but it’s not Ireland dipping its toes in the water of the markets, more like us taking off our socks near the pool.

By Stephen Kinsella

Senior Lecturer in Economics at the University of Limerick.

74 replies on “Journalists! Bonds are not Bills! Bills are not Bonds!”

Sorry if dumb question….why are we issuing Bills at all if we are fully funded. Are we filling some gap shortfall?

Isnt part of this down to the fact that if you said “the bill market”, no one on the street would have a clue what you were talking about? As such, they use “bond market” in a very lose tense? If someone can point me to someone other than David Murphy of RTE referring (below) to these as “bonds”, id much appreciate it. The reaction to the allegedly excited reaction is the more excitable element of this….

For the record, here’s the RTE reaction to it, fairly considered and dealing with all the facts…

“Ireland will make a limited return to the bond market as early as this Thursday when it will borrow money over three months.

The NTMA intends to auction €500m of three-month bonds. A full return to the markets would require raising funds over a longer period.”

I don’t like slide 218 at all. “Higher coupon payment, higher bond price” ?? I’m sure the accompanying talk makes sense of that but at first glance it looks wrong.

Anyway I think you’re pushing back too hard. If bills rank senior to bonds in default (IANAL but my impression is that they are so treated) then that’s a legitimate difference. Other than that, debt is debt, long or short.

Disclaimer: I’m now quite hopeful of getting rid of my bonds at a modest loss, so journalistic hype is fine by me.

@Eoin, my worry is expressed within the phrase ‘with all the baggage that phrase has for Irish people these days’. I’m not generally the type to point out minor definitional errors, but people will think this is something it’s not. Hence the post.

@Kevin, that might well be the case, we’ll see.

I remember commenting on Namawinelake’s blog that housing organisations like Cluid seem to be financed by interest free government loans. It was in relation to Cluid buying a number of apartments from NAMA. It was announced with much fanfare, but I saw it as a somewhat circular transaction given the Government is on both sides of the deal. I had some reservations that the government may encourage Cluid to overpay.

It seems that in the past the gov funding was done using t-bills (I’m not 100% certain of this). Assuming this is the case, you can get an unrealistic appraisal of the value of this kind of operation as the housing organisations funding requirements are long term. A more realistic evaluation should either use a weighted average gov funding cost or a longer term funding cost.

Now this may seem a bit off topic, but the reason I mention it was the recent media coverage of the mortgage to rent scheme and the numbers are probably around 500m .

Given Cluid’s involvement in such a scheme is funded by the government, it’s only fair the taxpayer should get more detail on the value for money.

There is basically no difference between a bond and a bill and there is no reason why they have different names.

If you borrow for 3 months its a bill
If you borrow for 3 years its a bond
If you borrow for 30 years its a bond.

Basically the name changes when the term to repayment is greater than the time the earth takes to revolve around the sun and then it doesnt change back no matter how many times the earth goes around the sun.


I am not clear at all why it matters if the small proportion of the population who are aware of this story get the wrong end of the stick somehow.

We will be making a full return to the bond market soon by convincing / coercing pension trustees to hand our pensioners pension pots over to government in an exercise called “how to screw your own population to get a PR win in the international bond markets”

Why do we need half a billion repayable in 3 months which will incur an interest payment if we are, as we have been told many times, fully funded until the end of 2013…would be grateful if someone could explain this to the uneducated….

@ VB

its more a sequencing issue – you gotta issue short before you can issue long. Nominal amount is relatively modest in the grander scheme of things. Its just about a ‘return to normality’ and re-engaging with the market. Plus this is expected to come at 2-2.5%, vs Troika funding at 3% or so, so you could delay some of the Troika drawdowns potentially too.

Why doesn’t Minister Noonan just fire off another Direction to NAMA to loan €500m at 2.35% per annum for three months. Isn’t that what we did with the Anglo promissory note jig?

How much extra will Ireland pay for three month bills? Is this cost worth it, to show we are back in the market?

@Bond. Eoin Bond

The Irish Examiner gets it completely wrong:
NTMA announces sale of three-month bonds

Ireland is to return to the bond markets this week with the auction of some €500m worth of short-term bonds on Thursday, the National Treasury Management Agency (NTMA) has announced.

The Examiner links to the actual NTMA press release which talks of a return to the “capital markets” but both the Irish Times and The Independent turn this into a return to the “bond market”:
Ireland set to make limited return to bond markets
Debt Crisis: Government to re-enter bond markets to raise €500m, stock markets rally

Both those headlines could have easily used “capital markets” instead of “bond market” but they chose not to – but this speaks mostly to the paucity of media standards more so than political pandering I would imagine.

@Actuary – it’s an awful pity that the government didn’t try “convincing / coercing pension trustees to hand our pensioners pension pots over to government in an exercise called “how to screw your own population to get a PR win in the international bond markets”” a year ago.

The Irish bond market returned 44.1% in the period, vs 12.1% for German bonds, and 7.7% for Eurosovereign Investment Grade bonds (incl Ireland).

That may seem specious, but the respective returns over two years, from 1st July 2010, are Ireland 5.52%, Germany 5.50%, Eurosov 3.15%.

(All data from ML bond indices – available on Bloomberg)



Sorry – I cant even try to engage with you with that opening comment but there are loads of investment consultants around the place who would love to talk to you.

@Actuary – there are an awful lot of investment consultants I’d like to talk to as well…but I don’t think they’d love it.

This is quite an expensive PR stunt, no? It’ll cost the exchequer about €7 million in interest payments to borrow this money and it serves no actual purpose other than to be able to say that Ireland has dipped its tow back in to the bond market.

Perhaps the psychological boost to the economy will more than cover that €7 million I suppose.

Sorry. I guess I overestimated the cost there by a factor of about two having read BEB’s estimate of a <3% borrowing cost.

Probably worth it so as a PR stunt and to test investor appetite in the market.

I see Karl Whelan and Laura Noonan at it again on Twitter…she really ought to know better…her ecstatic reaction to ireland entering the bond (or bills) market again was somewhat tempered by Karl’s referring her to the fact that Greece have quite painlessly been issuing t-bills up to very recently notwithstanding their disastorous situation (see link below)

Constantin weighed in too – asking Laura was it her view that there was no demand for short term irish debt before today?

…its better than apres match lads. I will give Laura one plus – she has balls of steel…it matters not one iota to her how foolish she is made to look…she really ought to be in politics…watch this space!

I suppose if Bank of Ireland is willing to lend the State €3bn for one year at 2.35% per annum, then for a smaller sum and a shorter period, that what 1-2% pa would be the market rate for 3-month €500m?


if you issue 3mth at c.2% it also makes the 1-2yr bonds at 4-5% seems a bit high too, so should help encourage people to buy them too. More than just optics or PR behind it. Its part of a wide-ranging strategy.

Horlix he says!

Entertaining stuff on twitter alright – I have to admire the fact Noonan will engage .

It is a positive move. If we were forever doing these T-Bill auctions at a loss without any improvement in sentiment then fair enough but its our first one in nearly two years.

a bit rough on the jouro’s! It’s just bad nomenclature, people do it with other countries – eg: in the US that there is a 5 year bond when it should be called a note instead.

I wouldn’t take this as a victory in any case.

@ Frank

far too sensible an idea. We need buzzwords to get us out of this hole.

@Bond. Eoin Bond

Had answered your earlier request (it was stuck waiting for moderation) and in that I had quoted from the NTMA – which stated it was going into the “capital markets”.

The media had to do more than simply regurgitate a press release (for once) to use the “bond market” nomenclature.


what do you reckon the differential would be between the % of Joe Public understanding the “tbill market” vs “bond market”? Is it possible they were just trying to get the story across in the easiest manner possible? As noted above, this seems like an awful lot of excitement in reaction to some sort of perceived reaction which never really happened.

@Bond. Eoin Bond

As the bould Mao used to say:

A journey of a thousand miles begins with a single step!

No harm in using the correct terminology now – if Ireland is going to go back into the capital markets after it’s long hiatus, why not start as you mean to continue – it might even make us a journalistically/financially better educated country!


I can’t think of any reason why ‘bond market’ shouldn’t be used in msm here – provided it is made clear these are very short dated bonds and not the type required for general market funding. If you use ‘bills’ most of the public will have no idea what you are talking about. How long did it take them to not switch off at the use of the term ‘bonds’?

‘bills’ is really just jargon for ‘very short term bonds’. Jargon is very popular with ‘experts’ – it keeps the ordinary folk dependent on them.

in defence of Stephen i think this post is educational both for me and also perhaps for some journalists. it would be great to see more clear explanation of economics on this blog. much of it goes over my head and a lot of the comments read to me like diatribes. I always scan to see some clear commentary from Eoin Bond – always interesting to read and a very valuable contributor in my mind.

I particularly liked Stephen’s analogy of taking off socks beside the pool vs dipping a toe into the markets…!

@BEB: “…an awful lot of excitement in reaction to some sort of perceived reaction which never really happened.”

I agree. If we’re going to do the Brad DeLong “Why oh why can’t we have a better press corps” lament there are many worse sins than referring to bills as bonds. AFAIAC bills are bonds, albeit with short maturities.

But if we’re doing pedantry, I hope economics lecturers have by now stopped referring to functions like f(x)=1+x as linear. That always pissed me off.

@ aiman

Very few pension funds would have gotten into the market 2 years ago. If the bonds were rock solid the yield wouldn’t still be hovering around 6%.

AIB shares could well be up 300% on one year ago but does anyone care ?

@ Grumpy

The rte story, where I believe a lot of this hullabaloo began, actually specifically stated that Ireland would have to be able borrow long term to be able to call it a full market return:

” A full return to markets would mean borrowing larger amounts over longer periods, and is unlikely to happen until next year.”

@Kevin Donoghue
“But if we’re doing pedantry, I hope economics lecturers have by now stopped referring to functions like f(x)=1+x as linear.”

I think you’re missing the point, f(x) = 1 + x is linear, it’s a function of a first degree polynomial, i.e. x^1, with a constant slope. You would have had a point if you had said any higher polynomial.

Ultimately this event is relatively minor by itself, but is a part of a longer chain of events, and a significant milestone, along the road to a full market return for Ireland. It’s not a massive turning point, but nor is it irrelevant.

Lastly, do most people think the general public will be very interested to hear how about the tbill auction and how it progresses? If the answer is yes, than the media are completely right to highlight and inform people, loudly and accurately, of how it’s taking shape. That is their job after all, and I think the reporting has been fair and accurate this far (the Indo went close to the ede though)

So last week NAMA paid back money costing 1% that it was not required to do until 2020. Paid with NAMA cash that the NMTA presumably put on deposit with IBRC on behalf of NAMA.

IBRC itself also had to pay a few of INBS (Fingers) 2007 bonds last week (1.? billion), so its cash balance was reducing on account of both events.

And in order to refill the IBRC bucket, the NTMA borrow money at 1%+.

It also means that the folks at NTMA, who must be a trifle under worked over the past three years, get to justify their continued employment.

There may of course be a grand strategy to ‘get back into the bond market’. They may be.
But in these times of overcapacity it helps to make noises about how relevant one is.
Next time perhaps the NTMA will advise NAMA to hold onto its cash and save us all some money.

@Kevin D

“But if we’re doing pedantry, I hope economics lecturers have by now stopped referring to functions like f(x)=1+x as linear. That always pissed me off.”

My maths must be even rustier than I thought. Why shouldn’t I call that a linear function?

Say this is the beginning of the end of bond and bill purdah. What Neary/gobshite spread over copped on countries is ireland likely to pay when equilibrium returns, assuming it does eventually ?


f(x)=1+x is properly called an affine function. A linear function must satisfy: (1) f(kx)=kf(x) and (2) f(x+y)=f(x)+f(y).

Yes, I’m being insufferably pedantic. But I think economists who give journalists a hard time about referring to T-bills as T-bonds should expect that. Glass houses etc.

@ Grumpy

All other things being equal do you think the 30 year run on bonds / shift south of yields is sustainable given the amount of risk that has built up under ever lower interest rates ?

Without an adequately rated bank on the other side of the debt deal, assets ranging from asset-backed securities to collateralised debt obligations, a market worth trillions of dollars, will have to be downgraded too. That could lead to higher funding costs for the many, many loans that the deals help finance


I think if you zoom out far enough the financial markets (and economies) have become chaotic, not least because the usual perturbations have been ‘manipulated out’.

The debt situation looks like a cul de sac which will end up being addressed via inflation, but I don’t think the popular demand for that is anywhere near making it happen yet.

I wouldn’t be surprised if actual deflation were required to allow a public U-turn before the anti-inflation mantras are binned.

So at some point I think bonds many get pummelled, but I’m not clever enough to be able to predict when – could be years.

I also reckon a lot of the complex deals that require the swap counterparties are of no general economic value and the very bright people arranging them should be applying their skills in a more useful way.

@Kevin Donoghue
You’re confusing linear functions and linear maps. f(x) = 1 + x is a linear FUNCTION, but it is not a linear MAP. You are confusing two different terms.

In geometry a linear function is a function of a first degree polynomial, i.e. x^1, with a constant slope, regardless of its offset. On the other hand a linear MAP, i.e. transformation, must preserve
f(x + y) = f(x) + f(y)
f(a*x) = a*f(x)

Thank you Kevin. Reminding people you can manipulate marices, on an economics blog, is just rude.

Eoin bond you seem very concerned at the terminology concern. It’s irrelevant at one level, but at another it’s not. The clear impression from “back in the bond markets” is its all over. “dipping a toe into short term capital markets to assess the chances of coming back to the bond markets” is not much longer and more accurate. I’d prefer RTE to be accurate rather than An Prabhda Nua, wouldn’t you?

@ Grumpy

I think the flipside of all the debt is the money that was created on the back of it and shoved into investments rated blind by agencies and bought without much, if any, due diligence. As with near zero EZ spreads that have recently de coupled there is probably something similar to happen in in other pools of the financial world.

@Not a Pedant
1. Oh yes you are. (So am I, in this thread anyway, but I don’t deny it.)
2. Avoid excessive use of CAPS. It suggests excitability.
3. See link below (PDF file). Note especially: “the only functions L:R->R which are linear are those of the form L(x)=ax for some real number a.” E. R. Weintraub’s book, Mathematics for Economists: An Integrated Approach also gets this right, I recall.

It seems that this is very much a quantitative rather than a qualitative difference. Note that in the US they refer to all their bonds as bills. The terminology is arcane enough without introducing false distinctions, surely, and insisting that a three-month bond isn’t a bond just because its term is only three months seems a bit unwarranted.

@ Gtfaway

“The clear impression from “back in the bond markets” is its all over.”

What proportion of the population will think that havin read any of the mainstream media reports today? There seems to be a wide assumption that people are either stupid or can’t read on here. It’s mildly condescending and arrogant, no?

@Bill Eoin Bill – “Very few pension funds would have gotten into the market 2 years ago. If the bonds were rock solid the yield wouldn’t still be hovering around 6%.

AIB shares could well be up 300% on one year ago but does anyone care ?”

What do you mean by rock solid? Pension funds, going by their performances over the last 12 years, have never been bothered by the concept or, if they have, it’s proved a pisspoor choice. Myself, if I’m going to be charged management (as opposed to just admin) fees, expect at least some of the PF cohort to buy cheap assets and eschew or sell dear ones, instead of sticking to some dumb moving-average based concept of risk as peddled to them by the Mercers of this world. Sure, sometimes they’ll get it wrong but, as things stand, most PF managers seem to see “getting it wrong” as being more than 1/2% away from the average performance of their peers, regardless of whether their peer group is making or losing money. Don’t you just love the comfort of “consensus” funds?

Oh, and when you come to retire, whatever is left will be used to buy a “rock-solid” annuity based on distortedly low German yields.

@Kevin Donoghue

You are still confusing linear transforms in linear algebra, which have a precise meaning, and linear functions defined as first order polynomials, i.e. linear equations.
3 Is an example of a linear transform from one vector space to another in linear algebra.

These two different definitions of linearity and are in many standard textbooks like Introduction to Linear Algebra by Strang, or in Advanced Engineering Mathematics by Kreyzig, and should be (from memory) in other ones like Calculus by Anton Bivens Davis, or Elementary Linear Algebra by Anton.

1. you are not supposed to do that with a PF or you might lose your PF status
2. You could not do that with the whole pot of 80-100bn euros as markets are not that big
3, Only about 50% of assets are in EZ equities-rest are in bonds, property, non EZ equities etc.

MAny moons ago the Deputy for Dublin Rathdown was advising readers to sell Pension Managed Funds & buy basket of Irish shares-you know the likes of the Banks plus the Special Bank, Elan, Indos, CRH etc. Wonder how that trade worked out?

A former poster on this website picked two share for the next decade in an Independent newpaper article the middle part of the last decade. Anglo and Eircom. I wonder how that trade worket out.

MAny PF managers are not worth the fees they earn and many consultants are overpaid for what they do. However, for the most part they are better steward of the punters capital than their critics-many of whom were Fund Managers in their time.


I do not understand a word of that post. Are you admitting to being mediocre?


Those who don’t know what they are doing shouldn’t claim competence.
That goes for pension investment consultants as much as it does for the Patrick Nearys of the world.

The losers tend to be the punters.

DB pensions are a mess. That’s why so many schemes are closing.
Flawed investment strategies and actuarial arrogance were a lethal combination.

Er, they are bonds. As grumpy says:
“‘bills’ is really just jargon for ‘very short term bonds’. Jargon is very popular with ‘experts’ – it keeps the ordinary folk dependent on them.”

Investopedia defines t-bills as:
“Definition of ‘Treasury Bill – T-Bill’
A short-term debt obligation backed by the U.S. government with a maturity of less than one year. T-bills are sold in denominations of $1,000 up to a maximum purchase of $5 million and commonly have maturities of one month (four weeks), three months (13 weeks) or six months (26 weeks).

T-bills are issued through a competitive bidding process at a discount from par, which means that rather than paying fixed interest payments like conventional bonds, the appreciation of the bond provides the return to the holder. ”

I’m guessing the US government isn’t backing the NTMA issuance, but the slang has travelled.

The second paragraph provides the difference – treasury bills are short-duration zero coupon bonds. A bit of a mouthful, so bills it is…

And “something like that” with regard to duration is not really helping the issue there Stephen… the NTMA give a primer on what they consider to be bills – . Note that they also say they are sold in “competitive auctions confined to Primary Dealers in Irish Government Bonds and to Eligible Treasury Bill Counterparties”, so ‘bond’ market is not incorrect, it is just not complete.

That the selected partic

I agree with you. I was merely pointing out that some of the alternative “out there ” strategies advanced by journalists, politicians, brokers, failed fund managers and academics would have been even worse.

So NAMA’s cost of funding is the 6-month Euribor rate reset at the end of Feb and end of August each year, presently just under 1.3%, and NAMA has a mountain of cash, and the State is paying 1.8%, or 0.5% more or €2.5m more per annum on €500m, or €625,000 more for 3 months.

So we just spent €625,000 to show “we’re back in the market”, just like the Greeks…

And the “market” is supposed to take this as a sign of strength and confidence?

Has the NTMA the option of postponing drawdown of some official funding and might this be at higher rates?

@ Tull/Seamus/Jagdip

the suggestion that “the NTMA just cost us 625k” is bereft of imagination at numerous levels. There’s plenty of reasons why the opposite is in fact the case.

@ E.EB

I agree. I also find the reaction to this somewhat beguiling. There are lots of people trying to talk down this move by the NTMA but in doing so they have to accuse everyone else of talking it up. I have seen very little of that. As you say above there is a “reaction to some sort of perceived reaction which never really happened.” The first step is over. Move on and lets see what happens over the next few months.

Money rocked up & bought the bills. This site is full of bullshit analysing it to death. I read your blog and note a continuing boosting of Saint Pearse the Engineer. Have u joined?

@ Seamus Coffey 2:22pm

“I also find the reaction to this somewhat beguiling.”

Beguiling? Surely you meant ‘bewildering’?

@Eoin, seamus, tull,

Its almost as if some people would prefer if Ireland could avoid market funding of whatever deficit or surplus the market might be willing to fund, preferring official bailout funding. Surely that can’t be true can it?

Some in that camp even opposed the bail out. Fewer still would prefer we live beyond our means without having to resort to any loanshark

@ Grumpy

I think some people are worried that a return to normality will mean a return of previous bad habits. Nothing wrong with having that fear. But their solution seems to be that Ireland should either be able to fund itself for 10yrs at 4%, or not bother trying to fund itself at all. Its an all or nothing equation. Empire building at NAMA now seems to be encouraged too. Strange times.

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