Some debt issues

This post was written by Seamus Coffey

The past week or so has seen a bit of a bounce in debt issuing from Ireland.   The NTMA’s 3-month Treasury Bill programme has almost become routine.  The results of last week’s auction saw a bid-to-cover ratio of more than four and a yield of 0.55%.

The semi-state utilities engaged in longer-term issues with bids for ESB’s 7-year bond covering the €500 million offered last week 12 times while Bord Gais’s €500 million 5-year bond issued today was covered 13 times.

Also last week, Bank of Ireland issued a €1 billion covered bond on offers of €2.5 billion after initially announcing that they would be seeking €0.5 billion.  The bond was given a Baa3 rating by Moody’s, one notch above the Ba1 non-investment-grade rating assigned by Moody’s to the bonds of the Irish government.

Both Moody’s and Fitch issued statements about Irish government bonds last week (covered here) with the only minor change being a change in outlook by Fitch from negative to stable.  Today, there were some largish price moves in Irish government bonds, particularly at the long end. 

The daily report from the Irish Stock Exchange (archived copy) shows that the price of all bar one of the bonds from 2017 on rose by at least 0.8%, with both the 2020 bonds rising by more than 1.0%.  The yield curve has a fairly standard shape and all the yields out to 2025 are below 5%.  The five-year yield from the October 2017 bond is around 3.1%.

Interpret these issues as you wish.

42 Responses to “Some debt issues”

  1. David O'Donnell Says:

    +

  2. DreadedEstate Says:

    The 5 year rate at 3.1% is well into the sustainable range.

  3. Fiatluxjnr Says:

    @DE
    Agreed but watch out for the European Fiscal Cliff….
    http://www.telegraph.co.uk/finance/financialcrisis/9694299/Eurozone-stability-depends-on-Greece-talks-warns-Samaras.html

  4. OMF Says:

    Interpret these issues as you wish.

    Oh goody.

    The week or so has seen a bit of a bounce in debt issuing from Ireland. The NTMA’s 3-month Treasury Bill programme has almost become routine. The results of last week’s auction saw a bid-to-cover ratio of more than four and a yield of 0.55%.

    Oh. I’m so glad we kept paying those diligent boys at the NTMA over the last two years. While they did nothing. Where would we be now without all these three month treasury bills from heaven?

    The semi-state utilities engaged in longer-term issues with bids for ESB’s 7-year bond covering the €500 million offered last week 12 times while Bord Gais’s €500 million 5-year bond issued today was covered 13 times.

    Oh. My. God. Are you being serious? The semi-states… can issue…. their own bonds….? Those old creaking hulks, stuffed to the gills with gombeens, FF apparatchiks, frisky ex-civil service men, and spivs can issue their own bonds….which have to be backed by the Irish state?!

    ……we’re doomed.

    Also last week, Bank of Ireland issued a €1 billion covered bond on offers of €2.5 billion after initially announcing that would be seeking €0.5 billion.

    Meanwhile, another semi-state has flown the coop and returned to “private” industry. Private as in profit, not as in loss of course. Given them another few years, they’ll be back for another bailout.

    The bond was given a Baa3 rating by Moody’s, one notch above the Ba1 non-investment grade rating assigned by Moody’s to the bonds of the Irish government.

    In other news, my dog recently broke wind. I think that’s at least as newsworthy as Moody’s opinions.

    The five-year yield from the October 2017 bond is around 3.1%.

    In 5 years, most of the people trading these bonds will still be under 30 years old, so I don’t think this number means a whole lot anymore.

  5. Michael Hennigan - Finfacts Says:

    In the Great Recession there have been many historic milestones; on March 05, 2009, the Bank of England cut its key benchmark rate to 0.5%, the lowest since it was founded in 1694. In recent years interest rates in many countries have been as low as at any time going back to the Babylonian Empire according to the classic ‘A History of Interest Rates’ by Sidney Homer, that was first published in 1963. So as the euro debt crisis continues and Ireland faces years of economic stagnation (the multinational sector will continue to provide the illusion of real growth), the current market perception of Irish risk is lower than that of the other economies which are in intensive care.

    Interest rates were commonly at double-digit rates in Babylonian times and Homer wrote: “After the Persian conquest, 539 BC, there is some evidence that 40% became a common rate of interest in Babylonia. This was after Mesopotamia had lost her independence. Babylonia was no longer a great capital city.”

    On Wednesday, the 3-month EURIBOR rate was 0.91%; it was 5.29% in early October 2008.

    Finfacts reported earlier this year that the yield on 10-year British gilts dropped to a record low of 1.92% in January, which was below the previous low of 1.96% recorded in 1897 and the lowest level since Bank of England records began in 1703.

    In July France joined Eurozone countries such as Germany and the Netherlands in selling short-term debt at negative interest rates.

    Days before, the European Central Bank cut its key policy rate to a new low of 0.75% from 1% and reduced its deposit rate to zero.

    US non-financial companies hold about $5tn in cash — equivalent to a third of the annual economic output of the United States.

    In ‘The Birth of Plenty: How the Prosperity of the Modern World was Created,’ author William Bernstein writes:

    Over the broad sweep of history, all of the major ancient civilizations demonstrated a ‘U-shaped’ pattern of interest rates. There were high rates early in their history, followed by slowly falling rates as the civilizations matured and stabilized. This led to low rates at the height of their development, and, finally, as the civilizations decayed, there was a return of rising rates.

  6. Bond. Eoin Bond Says:

    @ OMF

    “Oh. I’m so glad we kept paying those diligent boys at the NTMA over the last two years. While they did nothing. Where would we be now without all these three month treasury bills from heaven?”

    You’re aware they raised €4.2bn in 5yr and 8yr funding during the summer, and have swapped/refinanced another €4.5bn, right? May not fit with your narrative in fairness, but just wanna be sure you’re in the loop on these developments.

  7. paul quigley Says:

    Thanks Seamas
    Thats all fine as far as it goes, but the scale and degree of monetary intervention these days is such as to rended the concept of ‘market’ fairly dubious:

    ‘I have in the past noted an important peculiarity of this global inflationary cycle: Rather than the more conventional currency printing press, the Global Credit Bubble has been fueled in large part by (electronic-entry) marketable debt instruments. This has created key advantages in terms of this cycle’s durability and longevity. For one, it has tended to isolate the greatest inflationary effects within the global securities and asset markets. Second, this dynamic has provided policymakers with incredible power to intervene in the markets to bolster confidence and spur the ongoing inflation of financial instruments (both quantity and price).

    But any inflationary cycle “advantage” comes with a significant downside. For one, never in the history of mankind has an inflationary cycle so spurred and rewarded financial speculation. Global risk markets have evolved into essentially one historic policy-induced speculative Bubble. Financial speculation was nurtured into one gigantic “crowded trade,” which manifested into the dysfunctional “risk on, risk off” trading dynamic. Increasingly aggressive policy responses over too many years created a speculation monster that will not be easily contained or tamed’

    http://www.prudentbear.com/index.php/creditbubblebulletinview?art_id=10728

  8. Brian Woods Snr Says:

    @ MH-ff: Michale Hudson wrote an interesting piece (some time back) describing debt since Sumerian times; very enlightning in view of the current shenannigans.

    ‘The Mathematical Economics of Compound Interest: a 4,000-year overview’, J. Econ Stud. 27. (4/5). 2000.

    At what juncture does the Shekle drop and folk realise that a geometric trend crushes an arithmetic one? Maybe never?

    Its not in the interest (no pun intended) for those whose income is interest, to decline lending to those borrowers whom the lenders know can never repay the principle. Its the cash flow from the interest payment they seek. They do not give a fiddlers about the principle - it had no existence prior to being created with a keyboard. So it can never be a loss.

    Lending to a state which can persistently ‘loot’ their taxpayers and grind the majority of its citizens into poverty is like betting on a horse race with only one runner. Guaranteed returns. Its a bl**dy no-brainer! Though the IMF seems to be getting a tad windy about this.

    Gives a whole new meaning to Locke’s definition of ‘private property’. At least he was referring to nature’s gift of land (and the hard manual labour of individuals). There cannot be a legitimate claim of property rights over an entity which has no prior existence and was created out of nothing. Only the Lord can assert that claim. Are lenders the new gods then? Seems so. Are we in Purgatory, or what?

  9. John Corcoran Says:

    The era of the Irish politican culminated in Kennedy. He was born to
    the work and was at every stage of his life a “pro“. He rose on the
    willing backs of three generations of district leaders and county
    chairmen who, like Barabbas himself, may in the end have been saved for
    that one moment of recognition that something special had appeared among
    them. That moment was in 1960 when the Irish party chieftians of the
    great Eastern and Midwestern cities, for reasons they would probably
    even now not fully explain,came together to nominate the grandson of
    Honey Fitz.

    It was the last hurrah. He, the youngest and newest, served in the
    final moment of ascendancy. On the day he died, the President of the
    United States, the Speaker of the House of Representatives, the Majority
    Leader of the United States Senate, the Chairman of the National
    Committee were all Irish, all Catholic, all Democrats. It will not
    come again.

    Daniel Patrick Moynihan 1964.

  10. grumpy Says:

    @Michael H, Brian W

    I can’t find Datastream codes for Sumerian, Babylonian or Persian 2, 5 & 10 year benchmarks, even in the old hard copies.

    Are you both trying to prove you are over 30?

  11. seafóid Says:

    It looks better than it did a year ago but the volumes issued are still low and the spreads versus AAA are high. I think it’s bond purgatory.

  12. Jag Singh Says:

    “Interpret these issues as you wish.”

    They all seem outstandingly positive (though there’s a note of caution with Moody’s saying we’ll need a new bailout when the current programme expires in 13 months.

    But what assumptions are being made about a debt deal for Ireland?

    And is Greece really sorted?

  13. grumpy Says:

    @Jags

    I’m not suggesting you are, but people have to be careful not to confuse the interests of those making decisions about credit risk on bonds with some sort of equity interest in the country of Ireland.

    In a way, so far as bond investors are concerned, a deal on the Pro notes doesn’t matter that much so long as the view is maintained that should, Ireland appear to become unable to pay coupons on its gilts or roll one over, then some sort of deal / write-down / rescheduling will be done on PNs or something else, as necessary, to prevent a default on the sovereign’s bonds.

    The consensus view on Irish sov debt is that either Ireland has / is / will do what it is asked and GDP will go up, or if not, then some deal will occur to prevent any default.

    None of that is inconsistent with years or even decades of high debt overhang etc which the Irish population would probably consider problematic.

  14. Bond. Eoin Bond Says:

    @ Jagdip

    “Moody’s saying we’ll need a new bailout when the current programme expires in 13 months”

    this is what Moodys actually said…

    “Ireland has sufficient funding under the EU/IMF support package to cover its entire financing requirement until the end of 2013. Moreover, it has made preliminary steps in an attempt to return to markets on a sustained basis, from which it had been excluded since October 2010. Nevertheless, we expect that the end of Ireland’s current EU/IMF support programme at year-end 2013 will potentially prompt the need for official financing being available, possibly in the form of a precautionary programme.”

    “precautionary programme” = a credit line being in place, ala the ESM. They also use the word “potentially” in there too.

  15. seafóid Says:

    Ireland has sufficient funding …to cover its entire financing requirement until the end of ….

    was a formula used by BLTD RIP, wasn’t it ?

  16. OMF Says:

    You’re aware they raised €4.2bn in 5yr and 8yr funding during the summer, and have swapped/refinanced another €4.5bn, right? May not fit with your narrative in fairness, but just wanna be sure you’re in the loop on these developments.

    Raised? Raised? Do you mean they grew it on trees or found it under the sofa?

    No. They borrowed it. €4.2bn to pay the salaries and pensions of the top 10,000 people in this country, and a corresponding €4.2bn + interest debt landed on top of the rest of us. Oh I’m in the loop alright.

  17. Fiatluxjnr Says:

    @OMF
    “No. They borrowed it. €4.2bn to pay the salaries and pensions of the top 10,000 people in this country, and a corresponding €4.2bn + interest debt landed on top of the rest of us. Oh I’m in the loop alright.”
    +1

    120% of debt/GDP soon and continuing to borrow 15b pa to pay the wages. Sure we’re laughing.

    So the NTMA got “clipped”. Was it the Auditor and Comptroller General who spotted it first?

  18. Brian Woods Snr Says:

    @ Grumpy: Yeah, and a bit! I wore ’shorts’until I was 13!!!

    Now, I believe what you are seeking were written on Tablets of Clay (the wet variety!). Unfortunately, like politicians’ promises they have perished with time. The fragments which remain are, well, suggestive. :-)

    Makes for a good story though!

  19. Robert Browne Says:

    What I make of it is that the spin is going wonderfully well and that the group think is alive and thriving.

    @ Seafold +1

    So Ireland has enough money to reach the end of 2013? As Mrs Brown would say, “Thats nice”. Then we needs another bailout . Call it a “precautionary loan” call it a bailout extension, no matter what way you spin it we will have ploughed our way through 67.5 or 874bn and need to be bailed again. Surely, they know that we are going to need funding for Croke Park Ver2?

    Every time we take on more debt it is seen by practically all our economists as a cause for celebration? The good old boys of the NTMA and Department of Finance where would we be without them?

    Michael Noonan came out of a meeting about Greece’s debt and funding issues at 4.30 am this morning looking exceedingly grim, tired and probably apprehensive because he knows the June, game changing moment has all but disappeared.

  20. aiman Says:

    “Oh I’m in the loop alright.”

    @OMF - does that make you a looper? Only asking.

  21. Fiatluxjnr Says:

    http://www.rte.ie/news/2012/1122/taoiseach-bank-debt.html

    No deal.

  22. Rory Says:

    Why does anyone listen to what Moody’s says anyways?

  23. Joseph Ryan Says:

    Well done to John Corrigan and the NTMA for fighting our corner.
    It is good to know that somebody in the PS is not prepared to take it lying down.

  24. David O'Donnell Says:

    fyi

    Scientists do not disagree about human-caused global warming. It is the ruling paradigm of climate science, in the same way that plate tectonics is the ruling paradigm of geology. We know that continents move. We know that the earth is warming and that human emissions of greenhouse gases are the primary cause. These are known facts about which virtually all publishing scientists agree.

    http://oilprice.com/The-Environment/Global-Warming/Contrary-to-Popular-Belief-Scientists-are-United-on-Climate-Change.html

  25. David O'Donnell Says:

    … and the ruling paradigm on unsustainable Irish debt is … ?

  26. Ahura Mazda Says:

    while lower yields are very welcome, (besides the lower yields in themselves) little in the irish economy has improved which merits such movements. Pricing for eu sovs seems too sentiment and short term driven. Manipulation by ecb etc also distorts things.

    My gripe-de-jour is the failure by government to improve competitiveness. Too many expenditure cuts are sneaky civil servants shifting costs on the wider public (/subsets) rather than lowering costs. For example if employers have to pay more for sick leave, the gov will claim this as an expenditure cut but equally could be seen as an additional tax on employers.

  27. Robert Browne Says:

    @ Joseph Ryan

    I would be much more impressed if we took action against our own public servants who made grievous mistakes and who partied long and hard with those whom they were supposed to be regulating during the crisis. Also, actions against our own banks and financial institutions such as those that ran Irish Nationwide, EBS, and AIB also, those bankers that persuaded the government that there was a liquidity crisis in Irish banks when in fact they knew all along that it was bankruptcy and insolvency. How are we to have any confidence when the same people are still in charge?

    These were the same people who, having persuaded the government to rescue them, promptly used bailout funds and tax payer funds to top up their pension scheme deficits and salaries while those to whom they failed but to whom they had fiduciary, moral and ethical responsibilities to, were wiped.

  28. Robert Browne Says:

    I think this vid is worth a listen to from the man who made the “Big Short”

    http://www.zerohedge.com/news/2012-11-22/michael-burrys-reminder-after-every-over-consumption-brutal-hangover-inevitable

  29. David O'Donnell Says:

    Plan for exit from bailout includes sale of €10bn in bonds, TDs are told

    … Mr Corrigan said: “As an investor, Franklin Templeton are clearly very welcome in the positive view they have taken on the Irish market.

    “We would prefer if we had 10 Franklin Templetons, rather than one.”

    http://www.independent.ie/business/irish/plan-for-exit-from-bailout-includes-sale-of-10bn-in-bonds-tds-are-told-3302963.html

    @all
    Such facts are positive. That said, they have zilch to inform us on the state of the Irish Citizenry, the abysmal record in governance reform, or the peculiar resiliance of the insider class in maintaining its position. Some phenomena are simply unrepresentable by number ….

    Blind Biddy was demonstrating on disability issues again last night - and Mad Oul Jozie down the road had her home help hours cut again … this is reality for some people.

  30. Fiatluxjnr Says:

    @DOD
    From your link
    “He said there was little risk that the US firm would damage the price of Irish bonds by selling out of its €8bn investment.

    This, he argued, would be “self-defeating”, adding that the firm was likely to have considered its exit strategy before deciding to buy the Irish assets.”

    All fire doors securely locked????

  31. Mickey Hickey Says:

    Finanza (An Eye (occhi) on Finance) is a useful site. Most articles are Google translate ready.

    In the linked article there is a reference to Tesco becoming a gold pawnbroker. Are things that bad.

    http://intermarketandmore.finanza.com/crescita-economica-e-inflazione-occhio-italia-22252.html

  32. David O'Donnell Says:

    Jens Weidmann, the president of the Bundesbank, Germany’s central bank, spoke up and called for a radical change of course. Banks must be more strictly prevented from “exposing themselves to solvency risks of states,” he said.

    http://www.spiegel.de/international/europe/tacit-bond-arrangement-between-governments-and-banks-endangers-system-a-868971.html

    Good ol Jens - never a dull moment!

  33. Mickey Hickey Says:

    A wide ranging article that hits the important buttons. Lack of sound collateral and demand for loans. Banks eager to lend but demand is lacking. Need for govts’ to borrow from banks and embark on major public works. Rescue the banks by borrowing from them and put resources to work. Reverse of what has been happening.

    http://www.project-syndicate.org/commentary/the-need-for-redistribution-of-wealth-and-income-in-order-to-save-capitalism-from-its-current-crisis-by-robert-skidelsky

  34. David O'Donnell Says:

    Angela’s Election

    There is very little chance that the EU’s bailout funds will absorb any bank debts taken on by the Irish State over the next year, says Guntram Wolff, deputy director of Brussels-based economics think tank Bruegel.

    A German national, who until recently worked for the European Commission, Mr Wolff told the Institute of International and European Affairs Irish Presidency Conference that German law explicitly excludes the use of bailout fund resources to recapitalise banks.

    He said that only after the German election, next September was there any possibility that Germany’s laws might be changed to allow for bank recapitalisation from the bailout funds.

    http://www.irishtimes.com/newspaper/finance/2012/1124/1224327040933.html

    Angela’s birthday? Angela’s vacation? Angela’s Reign? ….. Whither European Democracy? Now all must be considered re impact on the German election in Sept 2013 …. am I the only one who finds this bizzare?

  35. Michael Hennigan - Finfacts Says:

    John Corrigan’s claim on Thursday that the NTMA had no way of identifying that its was being bilked out of a few million euro when it was a UK client of State Street Europe who had first alerted the bank of alleged fraud, is ridiculous.

    The NTMA was in effect alerted to the situation from a report in The Financial Times.

    Verification of invoices is a basic accounting routine in a company and when an invoice is received with a net figure for a multi-billion transaction, there is no request for supporting detail/third party documentation that would have enabled a cross-check of the sales values to third parties!

    http://www.finfacts.ie/irishfinancenews/article_1025227.shtml

  36. Joseph Ryan Says:

    @David O’Donnell

    “Now all must be considered re impact on the German election in Sept 2013 …. am I the only one who finds this bizzare?”

    No.

    But what does it really mean?
    It means the present leadership Germany is unwilling to make the EZ or Europe work, because they may not get re-elected if they take the decisions necessary to make Europe work.
    But if they get re-elected on the mandate that they were unwilling to take such necessary decisions, why should anybody think or believe that they will make want to make Europe work after the Sept 2013 election?

  37. David O'Donnell Says:

    fyi

    Elliot vs Argentina is a domestic Argentine issue

    http://blogs.reuters.com/felix-salmon/2012/11/23/elliot-vs-argentina-is-a-domestic-argentine-issue/

    Pity about their rugby boys today …. but a neat win.

    @Joseph Ryan

    I find it maddening …. pause for a year …. most unjust to the Greeks whatever about us ….

  38. Mickey Hickey Says:

    Angela is no more likely to commit political suicide than would our own lovely cutesy wootsies given a similar situation.

    It is up to the periphery to get their act together and put the pressure on the core. Or at the very least make a feeble attempt at exerting whatever pressure they can muster. I see in South American news that at a recent meeting of Spanish speaking countries in Madrid, Mariano Rajoy lectured S. A. heads of state on the success of austerity imposed by IMF and USA, later modified by Brady bonds. The lack of knowledge and the impertinence of the man is quite simply astonishing. Unfortunately there are more like him amongst the periphery basket cases.

  39. Mickey Hickey Says:

    Cinderella’s Revenge
    A comment on recent IMF forecast, nicely written, it appealed to me. Italians have a wry sense of humour.

    intermarketandmore.finanza.com/la-rivincita-di-cenerentola-50517.html

  40. David O'Donnell Says:

    @Mickey Hickey

    I can discern no “logistical logarithmic progression” amongst the leadership (sic) of the so-called peripheral nations ….

    http://www.irishtimes.com/newspaper/breaking/2012/1124/breaking13.html

    I simply cannot visualize the periphery getting its act together with present set of leaders (sic) … they are all somatized and in total thrall to Angela and the financial system … seriously unbelieveable yet factual … little wonder 7_of_Nine remains off the planet. Lemming_esque sums it up.

  41. Joseph Ryan Says:

    @David O’Donnell

    Good link. Good reporting by Ir Times.
    http://www.irishtimes.com/newspaper/breaking/2012/1124/breaking13.html

    “The documents reveal a flurry of last-minute changes in July after the Department of Public Expenditure and Reform (DPER) told the Department of Health for the first time that the locations would be published at the time of the stimulus announcement.

    At that point, on July 16th, 33 locations were on the list. However, the Department of Health then drew up its “final list”. A memo sent to DPER at 8pm on that day – the day before the announcement – submitted a new list with Swords, Balbriggan and Oranmore added, and South Dublin removed.

    The following day another memo from the Department of Health, marked “urgent – revisions”, stated that there were “changes to last night’s list”.

    “There are now 36 locations. Ballaghaderreen is new . . . Kilkenny is new, Castlecomer is out, Oranmore is out,” the memo stated. It was sent at 11:55am, almost 1½ hours after that week’s Cabinet meeting started.”

    This is the Minister that must take on consultants and ‘vested interest’ in the health service!!!!!

  42. Fiatluxjnr Says:

    Faustian Pact…..looks remarkably like our strategy..
    http://www.spiegel.de/international/europe/tacit-bond-arrangement-between-governments-and-banks-endangers-system-a-868971.html

    Btw,Financial Times Deutchland to cease publication on December 7
    http://www.spiegel.de/international/business/media-woes-hit-germany-as-financial-times-deutschland-goes-under-a-869001.html

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