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An xin/AP
Government Bonds

Cowen admits bond cancellation is because of high yields

The Taoiseach says we’re not borrowing because of its costs – while the NTMA had earlier said it was a precaution.

BRIAN COWEN HAS ADMITTED that the high interest rates being demanded by international investors contributed to the government’s decision to cancel two bond auctions planned for the remainder of 2010.

Speaking to RTÉ’s Six One news, Cowen said that while it was wise to take time out of the market because of the government’s plans for a four-year financial strategy being published in November, the turbulence on the international markets meant that the government was uneasy about committing to further debts.

As noted by the Financial Times’ Alphaville blog, Brian Lenihan had announced that the government was backing out of auctions it had scheduled for October 19 and November 16, saying the exchequer was already funded until the middle of 2011.

There is traditionally no auction in December because it is considered unwise to do so while debates on the Budget are ongoing. The auctions would begin again as normal, Lenihan had said, in early 2011.

The NTMA’s director of funding and debt management, Oliver Whelan, told Alphaville that Ireland was taking downtime from the bond market in order to facilitate Lenihan’s plans for a four-year budgetary strategy aimed at bringing the budget deficit back to within the EU limit of 3% by 2014.

Whelan also explained that the December Budget – last night confirmed by Brian Cowen to be announced on December 7 – would play a major role in deciding the volume of bond auctions in future, and that the NTMA would be better served by waiting until the Budget was agreed upon before issuing fresh debt.

Cowen’s admission, however, showed that the government was simply unwilling to face lending at rates above 6% – a barrier broken by 10-year bonds two weeks ago today.