betting (spread) against Ireland

ste

If I were a bear:

If I was to form some macro-economic opinion that the ISEQ will decline and that the spread of Irish vs German bonds will increase - how best could I profit from it?
Timeframe - by end of year.

I don't really want to discuss the merits (or lack of imagination) of this opinion but how practically should one go about this?

Let's say I had 5k to "bet".

Any advice would be much appreciated...


And does anyone know how much more borrowing the NTMA needs to do before the year is out?

RATM

Im not sure how you'd harness this opportunity but it does appear to be there. Report was just on the RTE news to say that the spread between Irish bonds and German bonds is 3.8%. You'd expect that spread might increase further as we have to borrow even more to run the country.

As an aside I read several months ago that there is a $3bn hedge fund in London that is betting that Ireland will default, McWilliams has been predicting it for months as have a few other economists.

Dubh Geannain

I think the NTMA is borrowed up for the rest of the year. If Eamon O Cuiv is to be believed. But that is from the perspective of the day to day running of the country.

But if the banks need more recapitalisation then we could be heading back to the money markets.

Idbatterim

could the EU not borrow at lower rates and lend it to us? a bad situation is being made worse. If it werent for the bank bailout, the deficit and cuts would be more than managable. This recession and global credit crisis has affected all countries, Ireland worse than others. But the markets circling in on us, like the wildebeast and lions analogy are almost certainly sealing our faith. I mean there would be a big attachment to this though, i.e the EU or Germans or whoever, would give us strict targets and deadlines, any slippage, throw us back to the wolves... The markets targetting us and other EU members is also damaging Europe and the Europe Project.

Jim2007

RATM wrote: »

As an aside I read several months ago that there is a $3bn hedge fund in London that is betting that Ireland will default, McWilliams has been predicting it for months as have a few other economists.

I know that Mr. McWilliams has to sell his writings etc.... be really this is a rather silly!

For a start there is no realistic chance that any of the Euro countries will default, it might get very shaky for a while but that is about it. People forget just how interlinked our economies are - many major European pension funds are heavily invested in Ireland/Greece/Spain etc.... because they need the kind of returns that those bonds offer and because it's too late to get out now! The last thing Germany or one of the other large industrial nations can afford is for one of their major pension funds to take a big hit, so basically they are stuck with us:rolleyes:

It is also interesting to note that none of the countries have had real trouble raising money on the capital markets and it really is not surprising really if you think about it - high yield sovereign debt is still better than most of the junk bonds that are on offer as an alternative. And at the end of the day it's backed by the biggest economic block in the world - see the first point!

On top of that given the size of Irish sovereign debt, it is hard to see how a fund of this size would be able to operate in the market place without being exposed to very high risk of impairment - and right now very few investors have the stomach for that kind of risk, so I'd be a bit skeptical of that kind of fund....

You also have to remember that many of the financial institutions that are talking the bonds down are the very ones that need those bonds to add some return to their lack luster portfolios and of course the cheaper they can pick them up the better the yield!!!!


Good luck with that,

Jim (in Switzerland)