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#National Debt

# national-debt - Tuesday 5 October, 2010

Bond yields creep back up on Moody's rumours

As Moody’s considers downgrading Ireland’s credit rating again, the cost of government borrowing goes back up.

# national-debt - Thursday 30 September, 2010

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.

# national-debt - Wednesday 29 September, 2010

EC assurance over bailout does little to soothe bonds

The price of government borrowing remains close to its all time record despite Olli Rehn’s assurance about funding.

# national-debt - Tuesday 28 September, 2010

ECB step in, again - as bond rates hit new record, again Bond Markets This post contains videos

ECB step in, again - as bond rates hit new record, again

It’s the same old story, really. The world’s markets freak out about the price of Anglo, and Europe has to help out.

# national-debt - Monday 27 September, 2010

ECB 'prepared countries to raise cash for Ireland' - newspaper

A German paper says we were ready for a bailout – and the bond yields hit new records. Yes, again.

German report says ECB considered rescue fund for Ireland

Newspaper alleges plan to support Ireland was abandoned by EU banking body.

# national-debt - Friday 24 September, 2010

ECB holds off on intervention as bonds breach 6.55%

The market price of 10-year Irish government debt reaches another record – but there’s no European intercession.

# national-debt - Tuesday 21 September, 2010

Bonds hold steady as auction calms investors

The yields on four-year, eight-year and ten-year bonds are all staying calm after this morning’s auction of fresh debt.

# national-debt - Friday 17 September, 2010

IMF says it doesn't think Ireland needs its help

The International Monetary Fund praises the efforts to prop up the banking system as bond yields reach another all-time high.

# national-debt - Wednesday 15 September, 2010

Was Cowengate to blame for a second spike in bond prices?

Irish bond prices took a moderate increase yesterday – was a ‘hoarse’ early-morning interview to blame?

# national-debt - Thursday 9 September, 2010

Yields on short-term bills head downward after Anglo announcement

The NTMA sells off 5- and 7-month bonds at smaller yields than two weeks ago, despite the spike in 10-year bond rates.

# national-debt - Wednesday 8 September, 2010

THE MARKETS seem to have responded strongly to news of the Anglo Irish Bank restructuring plan. The 10-year bond yield had sat at 6.046% in the forty minutes before the restructure was announced; in the minutes afterward it fell to 6.012% and is now falling back to the happier side of the 6% mark, at 5.991% within an hour after the plan was announced.

THE YIELD being demanded of Irish 10-year government bonds has continued to ‘ebb and flow’ today, hitting a daily peak of 6.044% just a few moments ago. The bonds had began the day at 5.983% but jumped above 6% as trading kicked off, and has continued to creep upward. On the Dublin stock exchange, the ISEQ index is down just under 1%.

THE EXTENSION of the government bank guarantee seems to have done little to assuage investor fears on the world markets: in early trading this morning, the yield on Irish 10-year government bonds has shot past the symbolic 6%, climbing from 5.983% to 6.018% shortly after 9am when main trading kicked off. It could be a very nervous day: watch this space.

# national-debt - Tuesday 7 September, 2010

The internet asks: why no coverage of the bond crisis? Irish Economy This post contains images

The internet asks: why no coverage of the bond crisis?

The cost of borrowing balloons as the world fears Ireland could be the next country to fold. But why so little coverage?

# national-debt - Saturday 28 August, 2010

ECB urges spending cuts

Slashing spending and public sector pay is the only way to recovery, says Jean Claude Trichet.

# national-debt - Thursday 26 August, 2010

IRELAND’S short-term treasury bill auction this morning seems to have gone rather well. Demand for the six-month treasury bills was ten times more than supply, and saw the bonds sold off with an average yield of 1.978% – compared to a 2.458% yield at the last similar auction just two weeks ago. Eight-month bills were four times oversubscribed with an average yield of 2.35%, down from 2.81%. That that, S&P!

THE NATIONAL TREASURY MANAGEMENT AGENCY (NTMA) is to hold a treasury bill auction today, hoping that a strong investor uptake will help the country soothe the fears of jittery investors.

The price of the interest offered on bills and bonds auctioned by the NTMA depends on how much investors demand – which in turn is determined by whether investors are confident or nervous about the chance of their original investment not being returned.

Today’s auction – of short-term treasury bills, maturing between three months and a year – will hope to raise €600m for the Exchequer, but also act as an early chance for Ireland to put the impact of the Standard & Poor’s ratings downgrade behind it.

A strongly-contested auction would drive rates down, showing that investors might be taking the S&P downgrade with a pinch of salt.

The NTMA itself criticised S&P’s decision to decrease Ireland’s rating to AA- from AA on Monday night, saying the projections assumed that the final cost of the banking bailout would vastly exceed the costs projected domestically.

Bids for the auction are closing about now (10:30am), and the yields will be disclosed later today.

# national-debt - Wednesday 25 August, 2010

THE NATIONAL TREASURY MANAGEMENT AGENCY – the body which manages Ireland’s borrowing requirements, and its national debt – has criticised the decision of ratings agency Standard & Poor’s to downgrade Ireland’s debt rating.

The decision from S&P to downgrade the ratings – down to AA- from a previous rating of AA – means that Irish debt is seen as a riskier investment, and will likely see the NTMA required to increase it pays to investors who buy Irish debt.

NTMA chief John Corrigan told RTÉ that S&P’s analysis was based on an “extreme estimate” that the final cost of the government’s bank recapitalisation programme would reach €50 billion.

“We have taken issue with the rating agency,” he said. “It’s something we don’t like to do but there comes a point when the analysis is not robust.”

Last night, as news of the downgrade broke, the NTMA issued a statement with a similar conclusion, describing the approach as “flawed“.

What does it mean?

But why is the NTMA so annoyed – and how important is it that our rating has been downgraded?

Well, basically Ireland’s national rating is similar to the credit rating a person might get. If you’re good at making loan repayments or have a lot of money in the bank, you’ll get a good rating. If you struggle to repay your debts and don’t have much assets, you’ll get a lower rating and it therefore becomes tougher for you to to borrow.

As the name might suggest, an ‘AAA’ (or “triple A”) rating is the best one the agency can offer, with progressively fewer As – and the occasional plus or minus – being given to lower rankings.

Ireland’s new score of AA- isn’t exactly top of the class, but it’s still definitely in the upper reaches of the scores S&P assigns. We’re still very far away from being called ‘junk’. In fact, we could slip to a single A or even to BB before we’re given that ignominious title.

The only difference is that unlike the Moody’s downgrade last month, which brought its rating in line with those of S&P and the other main ratings agency Fitch, this change brings Ireland’s average another step downward.

We won’t find out for some time how the downgrade will affect us, however – the NTMA’s next bond auction isn’t until September 21, and the agency has already raised 99% of Ireland’s fundraising target for the year with three auctions still to go.

It will also be interesting to see whether the other agencies follow suit, with the S&P rating based on an arguably inflated estimate of how much the bank bailout will ultimately cost. Other ratings may be a little more conservative than S&P’s €50bn projection.

IRELAND’S NATIONAL DEBT might be becoming more expensive as a direct result of the decision by ratings agency Standard & Poor’s – but at least we can console ourselves in fact that the Financial Times has been amused by the whole thing.

Writing on the paper’s Alphaville blog this morning, Neil Hume seems to take great delight in the “punch-up” (in his words) between “a downgraded sovereign and a rating agency”.

Reporting that Ireland had “come out swinging” after the S&P move to downgrade Ireland’s sovereign rating from AA to AA-, Hume quotes a rep from the National Treasury Management Agency in a piece from Reuters.

The emphasis is that of the FT:

In a strongly worded statement, the National Treasury Management Agency said it disagreed with S&P’s view that Ireland faced substantially higher costs to bail out its ailing banking sector.

“In terms of the specific analysis by S&P, this is largely predicated upon an extreme estimate of bank recapitalization costs of up to 50 billion euros,” the NTMA said.

We believe this approach is flawed.”

It also points out that the ‘spread’ – the percentage difference in interest offered – in German and Irish government bonds has now reached a record 3.29%, while in August 2007 Irish borrowing was cheaper than that of Germany.

“Either way,” Hume concludes, “its [sic] provided some entertainment on a quiet summer trading day.”

The New York Times’ much-respected economics blogger, Paul Krugman, has offered solace for worried Irish investors by suggesting that ratings agencies are not the be-all and end-all, however.

Writing on his blog, Krugman offers a brief reminder that Moody’s and S&P – the two agencies that have downgraded Ireland’s ratings in the past weeks – gave Japanese debt a similar treatment in 2002.

Although the moves ranked Japanese debt as a riskier investment than that of Bostwana and Estonia, Japan can still borrow with less than 1% interest a full eight years later.

# national-debt - Monday 23 August, 2010

REPORTS THAT ANGLO Irish Bank may be about to transfer its second tranche of loans to NAMA at a significant discount have triggered a jump in the cost of Ireland’s loans.

Reuters is reporting that Anglo is looking at a 61% ‘haircut’ on the bank’s €7bn loan transfer.

An official statement on the sale and the discount involved is expected today or tomorrow.

Fears over the rising cost of bailing out Anglo have pushed up the cost of the nation’s debts, as investors demand to hold 10-year Irish bonds over German benchmarks.

The Financial Times warns that the bond-yield spread is heading towards high levels last seen in May.

Last week, the governor of the Central Bank, Patrick Honohan, said that Anglo would end up costing taxpayers €25bn, or 20% of GDP. He said that the bailout was “costly but manageable.”

The bank’s first batch of €10bn in loans transferred to NAMA was given a 55% discount. The second transfer was due on 19 July, but missed the deadline by over a month.

# national-debt - Wednesday 14 July, 2010

THE ESRI is predicting that Ireland will have the largest deficit in the EU in 2010. The think-tank predicts that Ireland will have marginal growth in 2010, with stronger growth in 2011 (GDP +2.75%).

In April the ESRI had expected a 12% shortfall between revenue and spending, however they now believe the shortfall will be closer to 20% in 2010. This is far above the 14.3 per cent registered in 2009. A 20% deficit would ensure that Ireland runs the largest deficit in the EU, for the second year running.

The main reason for the increase is due to a €12.9bn bailout of Anglo Irish Bank and Irish Nationwide, which Eurostat (the official European statistical agency) insists is classified as current spending. The bailout had been classified as an investment, but is now seen as current spending.  The ESRI said this was the sole reason for the change in forecast.

“We expect the General Government Deficit to be 11½ per cent of GDP in 2010. Including the cost of the bailout monies for Anglo Irish Bank and INBS, this figure would be 19¾ per cent. For 2011, we expect the deficit to fall to 10 per cent of GDP. This is based on the assumption that a full €3bn package of austerity measures is implemented in the 2011 budget.”

The ESRI said it supports the Governments plans to cut the country’s deficit, but said that cuts in spending will reduce growth by 1%. The institute also believes that employment will not grow till 2012.