Bond investor takes big punt on Ireland

The FT provides an update on Franklin Templeton’s strategy here.

34 replies on “Bond investor takes big punt on Ireland”

@ Genauer

“crime promoters”? And you wonder why people don’t often take you seriously…


There are mistakes in your calculations

3.5% of 130% is 4.55% of GDP – this is the nominal interest payment.

Of course GNP is the correct measure of national income and the nominal interest payment is then over 5%.

If inflation is 2% AVERAGE, I think we can assume that growing economies like Germany will have higher inflation and Ireland will have lower. Even assuming your low interest rates indefinately, the real interest payment will be well over 3%.

I especially love your appeal to demographics. When there are no jobs for the young and more and more will have to emigrate (“labour mobility”, don’t you know), how do you think this is going to save us?

The idea that a country in deep recession can piss away 5% of national income in interest payments is laughable. And of course we will have to beat down the national debt to 60% under the terms of the treaties.

Even the IMF knows that the debt is unsustainable and they have never suggested otherwise. According to them, under a low growth scenario, debt to GDP will reach around 150% by the end of the decade. And of course, there will be no growth at all under such an initial debt burden.

There are no examples anywhere of such a debt burden in a fixed ccy regime being sustainable, or perhaps you could enlighten us.

This is only going to end one way – restructuring.


‘This is only going to end one way – restructuring.


Bit of a real nuisance that an election in a certain big state has entered the time and timing equation. I remain in favour of a ‘declaration of intent’ to ‘postpone indefinitiely payment on the PNs’ until agreement has been reached with the IMF and our EZ ‘partners’ on how to overcome Ireland’s present sovereign/financial_system_vichy_debt unsustainability.


10% is a big bet by Templeton …. ‘spose a lot will depend on the ‘nature’ of the Irish re-structuring, how genuine sov bonds are distinguished, etc

Barry O’Leary just now doing a professional PR Job on Bloomberg …..

@An Taoiseach

Next re-shuffle you might consider Linda for the Senate … and if Michael is feeling the pressure … well???

@ Eamonn

i thought Argentina was doing great and was a template for countries wishing to default?


I dont see my original post here anymore, despite people responding to it.

Some technical problems, censorship ?

I would be be interested in what would have violated any rules : -)

@ Genauer

like i said, calling people criminals not the smartest idea. Rightfully deleted.

@BEB, Eamonn, DO’D

If one takes the view that the central lesson from the Argentine case is that sovereign default, where international investors are burnt, should be avoided if possible, then this actually strengthens the argument for walking away from the Prom Notes.

Since our debt is unsustainable the only course of action is either restructuring or devaluation/inflation. Since the latter cannot happen within the Euro, it is unquestionably preferable to simply not pay the debt of a dead private bank where the creditor is the CBI.

If the government continues to put its head in the sand about this, it is running the risk of having to default on sov bondholders later.

Of course, the ECB knows all this and that is why I think they will try hard to convert the Prom Notes to bone fide sovereign debt, perhaps by giving the Government a sweetener of a small reduction in NPV. This, I believe, is perhaps one of the worst possible outcomes of the current negotiations, but also one of the most likely.

“It’s a huge bet,” said one senior UK fund manager. “It is beyond the scale of comprehension in a small, periphery market like Ireland.”
Franklin Templeton’s heavy third-quarter purchases helped subdue Ireland’s bond yields, despite the headwinds of poor news.”

So now we know how the yields were driven down.

Think of Jens as on the Continuity Wing of the ECB. He is largely a busted flush. However if he does recover influence, it will end in mass default, the end of the euro and the European project.

@ Fiat

that FT article makes a lot of questionable assumptions and completely ignores the wave of other buyers returning to the Irish govt bond market of late


I .. er … er … agree. He is history – as is Jurgen Stark.

Blind Biddy and I still drink with Alex Weber … who wanted to cut senior unsecured bondholders in Irish banks. Good job we don’t work in a certain Swiss bank though ….

Big Day in Der Spiegel … so multiple links …

[1] Interview with Economist Hans-Werner Sinn
‘Temporary Euro-Zone Exit Would Stabilize Greece’ (no comment!)

[2] Accounting Tricks
Self-Deception in Berlin Impedes Greece Strategy
By Sven Böll, Christoph Schult and Anne Seith

[3] Fresh Greek Aid Debate
Coalition Parties Demand Clarity from Merkel

[4] The Merkel Paradox
Chancellor Fares Well, But Government Tanks in Polls

[5] Greek Haircut
Germany’s Trouble With the Truth
A Commentary By Stefan Kaiser

Getting into, and more importantly out of, the Deutsche Public Sphere … as Habermas might put it! Enjoy!


& Sinn is head of the IfO Institute …. Dear Lorenzo was also on the ECB
board … your pal Donal was in the IMF or was it Davy’s … and PD Michael of course (one of the ideological architects of the Irish disaster) and many more … your platonic penchant for dangerous fools in the financial sector has been … well … er … noticed … that said, keep up the good work … those you cite and praise are worth noting …

Thankfully, Angela appointed a decent Kantian Pragmatist Realist to the ECB – Jorg Asmussen does not appear to be inflicted with the most recent version of the German Ideology …. BTW have you read Marx’s chapter on Ireland … I recommend it – you might recognise yourself.

I popped in multiple links to Der Spiegel today – some serious stuff and excellent overview of the German Public Sphere …. while we await moderator ….

@DOCM your old pal …

Interview with Economist Hans-Werner Sinn
‘Temporary Euro-Zone Exit Would Stabilize Greece’
By Armin Mahler and Michael Sauga

…. SPIEGEL: Have you ever considered becoming a politician yourself?

Sinn: No, I take my profession as an economist seriously and feel a commitment to the truth. This is incompatible with having to toe the party line. I aim to help the Germans and the Europeans successfully travel all the way down the path toward European integration, and I can do this more effectively if I don’t commit myself to a party.’


Bond Eoin bond

Not so sure about that. It’s the sheep mentality.. Franklin took a massive punt and the sheep followed..then Franklin made another big punt. Unwinding would be a bit of a problem but Franklin is so big that it can absorb 10% of Irish government debt. And now with France downgraded…who knows.

@Fiatluxjnr – Don’t tell me you’ve fallen prey to the fallacy that buying at 10% of original value limits downside? The same fallacy that impelled some to buy, say, Bank of Ireland shares at €2 because they were “cheap”? The potential downside for the vulture fund is 100% of their cost price. It’s greater than 100% if they bought on a geared basis.

Basing assessments of value on cost price is the preserve of accountants, banks and developers.


If you cannot squeeze 10% oot of the asset then you really shouldn’t be buying distressed debt. It will be interesting to see how they proceed with realizations..the four goldmines or realistic negotiations. My bet is the later..the Yanks are pragmatic…half a thanksgiving turkey is better than KFC.

Jens is at it again..
“The Bundesbank president said there were two kind of legacy debt categories: countries where the issue “could be easily borne by national finance policy” and other cases where “the rescue mechanisms would stand ready to link financial assistance to conditions”.

A Bundesbank spokesman said yesterday that Mr Weidmann was not commenting on Ireland’s financial prospects.

However, in Bundesbank eyes, the spokesman said, Ireland belonged to the second category: unable to bear its legacy debt and reliant on conditional external assistance.

In his speech the Bundesbank president recalled how, initially, Europe was unequipped to deal with systemic dangers at that time, forcing “banking risk to become state risk”.

“Ireland, for instance, had a balanced budget in the crisis,” he said.

After its crisis “the deficit rose at times to over 30 per cent of economic performance”.

But Mr Weidmann indicated the lesson learned was not one of solidarity with Ireland, but how unstable financial feedback in one “non panic-proof” national banking sector had the potential to burden taxpayers in all euro countries.”


Give Derek Scally his due and provide the web link pls!

Jens has a little difficulty with the concept of ‘capital flow’ – by definition a flow has a direction, hence an origin and a destination. Poor ol Jens now spins (sim to Sinn) that all responsibility rests with the ‘destination’ so as to finesse German financial system responsibility {specially those lil ol landesbanken} as the origin of many of those dodgy capital flows which would imply that Germany must pay up – as the full blown attack on such spin by Der Spiegel that I linked to above suggests.

And this guy is the head of the Bundesbanke! Should we be concerned?

re D O’D:’ SPIEGEL: Have you ever considered becoming a politician yourself?

Sinn: No, I take my profession as an economist seriously and feel a commitment to the truth. This is incompatible with having to toe the party line. I aim to help the Germans and the Europeans successfully travel all the way down the path toward European integration, and I can do this more effectively if I don’t commit myself to a party.’

But this aint economics that Sinn is describing – it’s politics. And ideology. And one that identifies itself with ‘Truth’.
Anything here called ‘economics’ is only a machination intended to bring a subjective fantasy to a concrete-and-steel reality.
(I’m sure most people here have realised it already, but it still seems to have escaped the mass-media commentary)

re- fiatluxjnr
‘…forcing “banking risk to become state risk”.

Anyone still doubt the euro-hand in the bank guarantee ?

“‘…forcing “banking risk to become state risk”.”

Good spot. Propaganda at its best. But who did the ‘forcing’. Ireland should take its case against the ECB. We need to know all about the ‘forcing’.

@JR, Mark

I can’t find a copy of the Weidmann speach, but the quote is ““banking risk to become state risk” and the word “forcing” seems to be a characterization or description introduced by the Irish journalist.

You are right though. Ireland should have made public any evidence it has that it was forced to bail out any or all of its bank creditors, bankers or Crokies or anyone else for that matter, against its will and under threat. It should get on with it – if it exists, of course.

Continued non-publication reinforces overseas scepticism.

re- grumpy.

The biggest indicator that there was ECB involvement was, to my mind, the fact that within four weeks of the irish guarantee, the ECB issued policy material stating that such guarantees were the practice to be followed in such instances in future.

‘…..To this aim, Governments would
make available for an interim period and on appropriate commercial terms, directly or indirectly, a
Government guarantee, insurance, or other similar arrangements of new medium-term (up to 5 years)

Plus the later admittance that there was extensive consultation with Trichet up to & including that September date.
Plus the several times repeated ‘we were told in no uncertain terms were we to allow a bank to fail’ from Eamon Ryan & others.
Plus numerous comments from various european contingents more or less stating that the course of action taken in Ireland was intended to bulwark the european financial system (not exclusively referring to the later unsecured bonds issue).
bank senior debt issuance.’

”The ECB was designed to make any kind of political interference impossible. Because of the weakness of the EU’s confederal structure, the ECB has no European government to deal with and can dictate terms to national governments.
This became apparent early in the crisis, when the ECB forced the Irish government to guarantee the debts of the failed Anglo-Irish bank, owed mostly to German and French banks. The ECB has followed a similar line throughout the crisis, forcing democratically elected governments out of office and threatening dire consequences for voters who choose to defy it, while at the same time resisting any attempts to make bankers pay for the misjudgements that produced the crisis in the first place.”


That quote from the ECB followed the meeting mentioned in the text preceding your quote. That meeting in turn followed Ireland’s unilateral action to guarantee the liabilities and bounce Europe into doing something similar.

There is nothing there inconsistent with that interpretation.

It may be that Ireland was “forced” to guarantee the liabilities, including, bizarrely, outstanding bonds, but people outside Ireland will be far more likely to believe that, and back Ireland in its PN negotiations, if some real documentary evidence is published rather than assertion.

Quote preceding yours:

“The declaration of the euro area summit in Paris of 12 October 2008 states under section (8) that:
“With a view to complementing the actions taken by the ECB in the interbank money market, the
Governments of the Euro Area are ready to take proper action in a concerted and coordinated manner to
improve market functioning over longer term maturities. The objective of such initiatives should be to
address funding problems of liquidity constrained solvent banks. […] To this aim, Governments would
make available for an interim period and on appropriate commercial terms, directly or indirectly, a
Government guarantee, insurance, or other similar arrangements of new medium-term (up to 5 years)
bank senior debt issuance. Depending on domestic market conditions in each country, actions could be
targeted at some specific and relevant types of debt issuance.”
The declaration furthermore states that:
“In all cases, these actions will be designed in order to avoid any distortion in the level-playing field and
possible abuse at the expense of non beneficiaries of these arrangements”.
It was moreover noted that:
“While acting quickly as required by circumstances, we will coordinate in providing these guarantees as
significant differences in national implementation could have a counter-productive effect, creating distortions
in the global banking markets. We will also work in cooperation with the European Central Bank so as to
ensure consistency with the management of liquidity by the Eurosystem and compatibility with the operational
framework of the Eurosystem”.
In accordance with the Paris summit declaration, as confirmed by the European Council of 15 and 16
October 2008, the Governing Council of the European Central Bank (ECB) has considered the
appropriate framework for the granting of government guarantees on bank debt issuance, and agreed on
the following recommendations:”

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