Why are we borrowing at 6% on the market when the Troika is still lending at 3%? Would the NTMA swap all €14bn of eligible bonds for more expensive longer term debt? Is their an undisclosed issue limit?
We have a bit of form in losing the run of ourselves and even if things go as planned next year, given the iffy real economic outllook for some years, there would be more people with red faces than John Corrigan if bond prices started to spike again.
The economic reality is in fact worse than the headline figures suggest.
I agree with MH - this is good news but we haven’t quite reached the promised land.
- Rates of 5.5-6% would still be unsustainable if we didn’t have access to official sources as a back-up.
- Irish yields collapsed in the wake of the last summit and that could easily be reversed if no meaningful bank debt deal is reached.
- The Irish bond market is clearly still dysfunctional and illiquid and hasn’t been reacting to news in the same way as the Italian debt market. Clearly, the international focus is elsewhere for now.
I expect the auction to go well with enough domestic demand for these robust yields. But in the long term we will need sustained demand from international investors thoughout the business cycle and we are a bit far from that yet.
“I expect the auction to go well with enough domestic demand for these robust yields. But in the long term we will need sustained demand from international investors thoughout the business cycle and we are a bit far from that yet.”
Im hearing most of this will be international investors
as explained in the circular, all bonds switched and issued today will be at the pre-set, publicised rate, there will be no ‘range’ of values. Auction closed around 35 mins ago, results expected shortly.
Aah, I mean they used to say, for example, “we will auction E300-700m of 5-year bonds” That is omitted from the announcements as far as I can see, but I suppose it is academic as the results will presumably make clear the cover.
But if you don’t have a pre-announced range, then how can you calculate cover?
What happens if E100bn of bids come in at the publicised rate?
MOat will go towards maintaining the premium salaries that our public servants enjoy over their fellow citizens in the EU.
Good day for the govt which you despise and whose competence you deny. Bad day for your pal Pearse the engineer.
Small steps. Welcome but small. Shuffle really. Also Eoin I think your first post is rather disingenuous. We were always able to issue debt the q is at what cost. We get ESM at 3? We issue now at 6. For shorter times. To me it seems a demonstration of macho man economics.
“We get ESM at 3? We issue now at 6. For shorter times. To me it seems a demonstration of macho man economics.”
This is quite a pivotal question. As regards
“We get ESM at 3%?” That is really asking:
“If we have to borrow, why should we pay a market rate that relates to Ireland’s fundamentals when we could use much cheaper ‘Eurobonds’?”
The German response would be that there are no Eurobonds and the fact that the cheaper borrowing fron Eurobonds would reduce the already small determination to Gernanify the Irish economy, means you are not getting any.
Ntma will have sold this to investors as ‘yield reflects risk’. The politicians should be spinning to the rest of the EZ that it has been sold to investors as pricing in a significant ESM retrospective banking and IBRC bailout - and if there isn’t one Ireland will be out of the markets again.
“The politicians should be spinning to the rest of the EZ that it has been sold to investors as pricing in a significant ESM retrospective banking and IBRC bailout - and if there isn’t one Ireland will be out of the markets again.”
Agree….but they won’t…it will be more ..look at the great job we are doing.
Just looking at the Minister for Announcements, Richard Bruton, gives a flavour.
Any idea what percentage took the switch?..it looks small at 1 billion. And what does it tell us?
ECB Signals Bond Purchases
Markets Surge after Draghi Vows to Protect Euro
It was the signal investors were waiting for. The European Central Bank “is ready to do whatever it takes to preserve the euro,” its president, Mario Draghi said on Thursday. Markets leapt because the statement was a strong signal that the ECB will resume its program to buy the bonds of struggling euro nations.
All it took was () three sentences.
“Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough,” Draghi told an investment conference in London to mark the beginning of the Olympics. “To the extent that the size of the sovereign premia (borrowing costs) hamper the functioning of the monetary policy transmission channels, they come within our mandate.”
Say the ntma got most of the o/s debt switched into fresh debt at 6%. I presume most of the tiger debt has a lower nominal yield. What would be the extra interest bill and how much new austerity would be required to offset it? The indo had an article recently regarding how interest payments had risen after TSHTF and at around 100% of gdp at 6% you’d presumably need lots of new taxes to pay for the shift, stunning and all as it might at first appear. Can ireland work with 6% on bonds and sub 1% economic growth? Is there a limit to how much of the existing debt can be switched?
we took 3 month t-bills at 1.80%. They currently yield around 1.1%. We could probably issue a 3yr at c.4.25%. This is part of an overall funding model. We aren’t going to issue everything at 8y 6%. Further, as we get more funding in, it will become cheaper to fund the next round. On top of that, regaining market access will likely eventually lead to a rating upgrade, again reducing borrowing costs. Its a drawn out process.
Woohoo! We are back baby!
Anyone who says otherwise should commit suicide
Time to upgrade the government jet and also start compensating our public representatives for their financial sacrifices during the recent blip!
Along the lines of Grumpy’s comment, I’d question the timing of this auction in the context of seeking a deal on our debt with Europe. My preferred strategy would be a ‘look we’re completely fooked’ approach. I think we’re now in a weaker position.
Schauble praising us today for getting back in the bond market. How can we go with the begging bowl for relief if we can borrow in the market.
Btw, it seems we will need 24b to cover redemptions and deficits over the next two years. Might be a big ask?
Thanks for your reply. Is it not the case that any new issues will be at a higher yield than most of the stuff issued pre 09? How much was 2 yr issued in 2008? My understanding is that it is not just that there is more sov debt but that on average it is also more expensive. What is the average nominal yield on the current debt? I imagine it will be a windy road back so well done yesterday.
average funding rate pre-crisis was around 4.7%, probably average weighted maturity of 6yrs.
5yr ireland was 5.5% in Q3 2000 and 5.15% in Q1 2002. The stuff we issued in 2005-2009 was at all time lows, due to both zero credit risk as well as very low inflation (though not particularly low ECB rates), which created cyclically low interest rates (we currently have crisis-low rates, not normal-low rates). Anyone claiming that they are sure Ireland is insolvent and cannot afford rates around 5-6% is making unmoveable assumptions around inflation and nominal GDP growth in my view, as well as making assumptions that Ireland cannot benefit from continued lower moves in Irish yields like we have seen in recent months. Why would it suddenly stop now?
“Interesting that the jurisdiction of the bonds is Irish. Didn’t some Greek bonds issued fall under English law?”
All Irish bonds have always been issued under Irish law (with some very small legacy exceptions). Most Greek bonds were under Greek law and got haircut, but some international/english law bonds are holding out at the moment
Out of Left Field
A New Idea to Save the Common Currency
By Christian Rickens
Germany’s Left Party is not often associated with neo-liberalism. But a new proposal from a senior party member could provide a way out of the cycle of bailouts and bank aid. Why not just reboot the market economy and then cushion the fall?
Astoundingly, however, there really is a novel approach out there — on the far left of the German political spectrum, no less. Its author, Sahra Wagenknecht, is the deputy floor leader for the Left Party in the Bundestag, Germany’s parliament. Wagenknecht, now 43, joined the East German communist party SED in 1989 just a few months before the fall of the Berlin Wall. Until 2010, she was the most prominent member of the Communist Platform, the Marxist wing of the Left Party.
German Financial Regulator Elke König
‘It’s Time to Search for Alternatives’
Elke König is the head of the Germany’s Federal Financial Supervisory Authority (BaFin). In a SPIEGEL interview, she discusses the scandals rocking the banking world and what needs to be done to rein in its casino culture.
A fund manager from Manulife stated in an interview that PIIGS bonds may be worth considering after the dust has settled in 2 1/2 years or so. His pick of foreign bonds on a risk/reward basis is the Phillipines.
We have to take seriously that the German economic intelligentsia as well as the people on the street believe that the PIIGS were and are irresponsible, greedy, lazy, work shy, tax evaders as opposed to the responsible, hard working, Germans who bit the bullet ten years ago and made Germany into the paragon of virtue that it is today.
Until the rest of the EZ governments wake up and stop absorbing bank debt the Germans will continue to delude themselves. The problem has to be allowed to back with the inevitable result that DB and Commerzbank will fail or be bailed out by German taxpayers. Ireland has to stop being Patsies and wake up and smell the Jameson.