Trading Volumes in Irish Bonds

There has been ongoing interest in the yields available on Irish government bonds.  Using actual trades Bloomberg calculate an implied 10-year yield.  This surged to over 14% in the run up to the Brussels summit on the 21st of July.  The yields have fallen on almost everyday since and yesterday finished at 9.5%.

However, little attention has been given to the trading volume on these bonds.  Here is a little insight into trading volumes from the start of the year to August 9th.

For most days the trading volume is very low.  The average daily trading volume for the year is just 0.28% of the total number of bonds outstanding (c.89.6 billion).  For the January 2014 bond the average trading volume in 2010 was six times larger than it has been in 2011.  Trading volumes in Irish bonds in 2011 have generally been very low.

There has been an increase in the time since the EU summit when  yields also began to fall.  The average daily trading volume has been 0.82% since the EU summit.  The other occasion when trading volumes increased slightly was the first two weeks in April.  This was immediately following the March 31st publication of the bank stress tests and again was a time when bond yields were falling.

The Exchequer Balance

The mid-year Exchequer Return released on Monday gives a somewhat noisy insight into the state of the public finances.  It is hard to draw exact conclusions about the behaviour of tax revenue and government expenditure because of the changes introduced in last December’s budget and the reporting of the relatively meaningless ‘net’ expenditure measure which was also affected by the Budget. 

Anyway, in this little poke into the figures we will just look at the Exchequer Balance which allows us to throw all these anomalies into the mix and focus on the final outcome.

Here are the cumulative Exchequer balances for the past five years.

At €10.8 billion, the Exchequer Deficit for the first six months of the year is better only than the €14.7 billion deficit recorded in 2009, but is worse than the €8.9 billion deficit recorded in 2010.  However, the Information Note which accompanies the returns tells us not to worry because:

The year-on-year increase in the deficit was primarily caused by the €3,085 million in non-voted capital expenditure Promissory Note payments to Anglo Irish Bank, INBS and EBS. Excluding these, the deficit fell by over €1 billion.

This is meaningless and should more appropriately be described as misleading.