Author: 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.

The 1.783 million people working in Ireland can be crudely broken into the following three categories:

• Private-sector employees (1,112,000)
• Self-employed (290,000)
• Public-sector (including semi-states) employees (381,000)

Of the self-employed, 88,000 have employees (who are included in the first category).  Within the public sector, there are 330,000 employees in the public service and 51,000 employees in the semi-state bodies.  A breakdown of employees by category which are full-time and part-time would be useful but is not available.

These figures are taken from the most recent release of Quarterly National Household Survey (QNHS) , though the employee figures used in Table A3 of the release are actually based on the results of the Earnings and Labour Costs Survey (ELCS).

Graphs showing the trend of the three categories since 2008 (the start of the ELCS dataset) are below the fold.

While of no real significance there have been statements today from both Fitch and Moody’s which merit at least a reading.

First out were Moody’s with their annual credit report.  The press release is here.  There is no ratings or outlook action with this report but in a phone interview with a company analyst it is reported that he said the company is monitoring its negative outlook on Ireland.  Moody’s also removed an explicit PSI warning. 

Today’s release was not going to change Ireland’s rating with Moody’s which is Ba1 (‘junk’ status) with negative outlook.  Paddy Power are offering a “novelty bet" on Ireland’s credit rating with Moody’s.  As recently as August the odds were 9/1 that there would be a ratings improvement by the end of the year.  In my opinion a ratings improvement from Moody’s remains unlikely but the odds on it are now in to even money.

This evening Fitch did announce a ratings action with the negative outlook on Irish sovereign bonds improved to stable.  Their statement is here.  Ireland is at BBB+ with Fitch, three notches above ‘junk’ status.  The revision of the outlook is because they judge “that the risks surrounding the adjustment path have narrowed and become more balanced”.

The statement also says that it is not their expectation that there will be “a substantial cut in the public debt through an EU agreement to share the burden on legacy costs of bank recapitalisation”.

The MTFS from the Department of Finance can be read here.

Economonitor have put together some charts using the EU’s new Macroeconomic Imbalance Procedure which was introduced as part of last year’s ‘Six Pack’.  The charts are a little busy but the relative imbalances across the 11 economies covered are pretty clear.

Individual charts are produced for each of the countries.

It is not clear what impact the MIP will have.  Following the first alert mechanism report issued in February, in-depth reviews were issued for 12 countries over the summer (‘programme’ countries are excluded from the MIP).  The country reviews are at the bottom of this page. 

The conclusion of the reviews for Belgium, Bulgaria, Denmark,  Finland, Sweden and the UK was:

This in-depth review concludes that [country] is experiencing macroeconomic imbalances, which are not excessive but need to be addressed.

For France, Italy, Hungary and Slovenia the conclusion was:

This in-depth review concludes that [country] is experiencing serious macroeconomic imbalances, which are not excessive but need to be addressed.

While for Spain and Cyprus the conclusion was:

This in-depth review concludes that [country] is experiencing very serious macroeconomic imbalances, which are not excessive but need to be urgently addressed.

In no case was a formal Excessive Imbalance Procedure initiated so there is no example to indicate how this will look in practice.  Of course, 21 Member States remain subject to an Excessive Deficit Procedure.  Earlier this year Karl Whelan wrote a useful paper discussing, among other things, the imbalance scorecard devised for the MIP.