Current Bond Rate is Meaningless to Debt Position

ninty9er

In a similar vein to my other thread on the IMF. Short and sweet.

The current bond rate is meaningless for Ireland as the NTMA last went to market on 21st September and has indicated that the exchequer is fully funded until the second half of 2011, not needing to go forward with the October and November issuances.

So whilst the variance from the Bund is worrying as a signal, it has no current effect.

Sin é.

cson

No current effect but not hedging our lending as it were means we will have to go to the markets in Q1 2011 and it really remains to be seen how they'll react to Budget measures and the 4 year plan. Plainly at present they think we're bluffing.

ntlbell

most commentators seem to think we will have to go back in January

ei.sdraob

ninty9er wrote: »

So whilst the variance from the Bund is worrying as a signal, it has no current effect.

Unless one or more of the banks come calling around for another booty call

liammur

ntlbell wrote: »

most commentators seem to think we will have to go back in January

Correct.
You cannot leave it until your last cent has been used up. The longer they leave it, the higher the yield will go. So if the rate is anything like it is now, the IMF will be in by Feb.

Red Actor

ninty9er wrote: »

In a similar vein to my other thread on the IMF. Short and sweet.

The current bond rate is meaningless for Ireland as the NTMA last went to market on 21st September and has indicated that the exchequer is fully funded until the second half of 2011, not needing to go forward with the October and November issuances.

So whilst the variance from the Bund is worrying as a signal, it has no current effect.

Sin é.

This is not a troll but a search for enlightenment. We sell bonds at 5% (those happy days). I can understand a holder getting cold feet and selling at a loss. Is this loss the difference between what we will pay 5% and the selling rate on the secondary market (7%) with the original holder taking the 2 point hit - we are contracted to pay 5%, right?

ninty9er

That one's too complex for me, but that would be my understanding.

gurramok

Look, its 7.6%+ whatever it is now. Some commentators have indicated that the NTMA will go back to the market in Jan/Feb to raise further dosh, so if the rate is above 5%(the Greek bailout rate -ECB), we're in IMF territory. Judging on past FF budgets of not really impacting in cuts, we will really be hit by the markets on this one.

Of course, if FF water down their cuts, its curtains as the markets are not stupid.

Permabear

This post has been deleted.

Dannyboy83

ninty9er wrote: »

In a similar vein to my other thread on the IMF. Short and sweet.

The current bond rate is meaningless for Ireland as the NTMA last went to market on 21st September and has indicated that the exchequer is fully funded until the second half of 2011, not needing to go forward with the October and November issuances.

So whilst the variance from the Bund is worrying as a signal, it has no current effect.

Sin é.

It's not meaningless, it's actually rather meaningful.

It proves that the people who we need to fund this country have zero confidence in the people who we expect to lead it.
Fianna Fail announced the budget adjustment on Thursday and there was no relief. On the contrary, it continued to climb.

So here is what it means:
A) unless we find new leaders who the electorate trust and the investors will trust
or
unless the investors suddenly do a 180 post budget and believe that Fianna Fail were in fact right all along (rather unlikely)
or
C) unless Fianna Fail will manage to stick around long enough to pass another severe rounds of cuts in an interim budget in April (even more unlikely)

.........well, it proves we are leaning over the precipice of catastrophe.

It proves that we need a GE, asap, and whoever we elect must be prepared to cut heavily, otherwise it's all snakes and no ladders.

Scarab80

donegalfella wrote: »

This post has been deleted.

Ahhh the helping hand of the bond vigilantes.

Where were they when we were in the middle of a property bubble with 15% of the labour force involved in building houses and construction accounting for 25% of GNP, real interest rates of -2% and productivity going through the floor, price correction at that stage involved pusing our bonds down to 3%

Nice of them to tell us there is a problem now when we are running a 20bn deficit.

ei.sdraob

Scarab80 wrote: »

Ahhh the helping hand of the bond vigilantes.

Where were they when we were in the middle of a property bubble with 15% of the labour force involved in building houses and construction accounting for 25% of GNP, real interest rates of -2% and productivity going through the floor, price correction at that stage involved pusing our bonds down to 3%

Nice of them to tell us there is a problem now when we are running a 20bn deficit.

Didnt we signup to rather stringent rules and promised to be good little boys when joining the eurozone club?? Didn't we (and the rest of em) break our promises of the "stability & growth pact"?? what do we get now, oh yes lack of stability and no growth, whouwouldhavethought! :rolleyes:

We were servicing our debt then (yes funded by crazy one off property development which is not too different from countries going mad when they discover lets say oil),
and thats all they care about,
now there are big question marks about our ability to service debts going forward, and that's reflected in this figure

edit: oh and the likes of eu and imf were warning us since at least 2003 about our property bubble and runaway expenses

zootroid

donegalfella wrote: »

This post has been deleted.

That may be so, but I'd still bank on Cowen taking the easy options, and try spin his way out of it

jank

ninty9er wrote: »

In a similar vein to my other thread on the IMF. Short and sweet.

The current bond rate is meaningless for Ireland as the NTMA last went to market on 21st September and has indicated that the exchequer is fully funded until the second half of 2011, not needing to go forward with the October and November issuances.

So whilst the variance from the Bund is worrying as a signal, it has no current effect.

Sin é.

If it has no current effect why are the ECB currently buying up all Irish bonds on the secondary market? The IMF/EU are coming one way or another...

http://www.tribune.ie/news/article/2010/nov/07/ireland-on-brink-of-bailout-as-bond-markets-cease-/

Scarab80

ei.sdraob wrote: »

Didnt we signup to rather stringent rules and promised to be good little boys when joining the eurozone club?? Didn't we (and the rest of em) break our promises of the "stability & growth pact"?? what do we get now, oh yes lack of stability and no growth, whouwouldhavethought! :rolleyes:

We were servicing our debt then (yes funded by crazy one off property development which is not too different from countries going mad when they discover lets say oil),
and thats all they care about,
now there are big question marks about our ability to service debts going forward, and that's reflected in this figure

I believe DF's point is that bond investors and speculators provide financial oversight to soverigns by their pricing in the bond market. This oversight was wholly absent when it was needed during the creation of the bubble - the bond market priced in just over 1% above ECB risk of default for 10 year bonds in 2006. Now that we are running the biggest budget deficit in the world they have helpfully pointed out that things are bad by shorting bonds out to 7.5% yield - what service.

gleep

ninty9er wrote: »

That one's too complex for me, but that would be my understanding.

Brian,is that you?

Rabble Rabble

Scarab80 wrote: »

Ahhh the helping hand of the bond vigilantes.

Where were they when we were in the middle of a property bubble with 15% of the labour force involved in building houses and construction accounting for 25% of GNP, real interest rates of -2% and productivity going through the floor, price correction at that stage involved pusing our bonds down to 3%

Nice of them to tell us there is a problem now when we are running a 20bn deficit.

I think they were funding the boom.

Oh, sorry. Rhetorical question :-)

Scofflaw

Scarab80 wrote: »

I believe DF's point is that bond investors and speculators provide financial oversight to soverigns by their pricing in the bond market. This oversight was wholly absent when it was needed during the creation of the bubble - the bond market priced in just over 1% above ECB risk of default for 10 year bonds in 2006. Now that we are running the biggest budget deficit in the world they have helpfully pointed out that things are bad by shorting bonds out to 7.5% yield - what service.

That'll be because the bond market isn't there to help us, but to make money for itself, I dare say.

cordially,
Scofflaw

johnnyskeleton

ninty9er wrote: »

In a similar vein to my other thread on the IMF. Short and sweet.

The current bond rate is meaningless for Ireland as the NTMA last went to market on 21st September and has indicated that the exchequer is fully funded until the second half of 2011, not needing to go forward with the October and November issuances.

So whilst the variance from the Bund is worrying as a signal, it has no current effect.

Sin é.

I disagree completely, and why are you starting threads on questions that no one is seemingly asking (or rather, if they are asking these questions, why not disabuse them in those threads rather than starting new ones)?

The secondary market is the best live account of the likley cost of refinancing. Further, every increase in the yield shows that yet another investor has cashed out at less than they paid in i.e. people are losing money on Ireland.

Your arugment is like saying that crude oil prices is meaningless to pump prices, or social welfare payments are meaningless to the minimum wage. They are separate things, but they are very closely interrelated.

jank

johnnyskeleton wrote: »

I disagree completely, and why are you starting threads on questions that no one is seemingly asking (or rather, if they are asking these questions, why not disabuse them in those threads rather than starting new ones)?

The secondary market is the best live account of the likley cost of refinancing. Further, every increase in the yield shows that yet another investor has cashed out at less than they paid in i.e. people are losing money on Ireland.

Your arugment is like saying that crude oil prices is meaningless to pump prices, or social welfare payments are meaningless to the minimum wage. They are separate things, but they are very closely interrelated.

This!

Dare I say it I am going to book mark this thread and ill bring it up next February when we have to go to an external rescue fund... but hey don't see that predicament through your rose tinted judgement on the state of the country.

I also find it ironic that Rehn is here telling us what to do two days after you start this thread. The "solders of destiney" selling out ireland once and for all. Dev et all is turning in his grave.

ei.sdraob

Scofflaw wrote: »

That'll be because the bond market isn't there to help us, but to make money for itself, I dare say.

cordially,
Scofflaw

"Helping us" is a positive side-effect. A feedback mechanism.

We need feedback mechanisms and more importantly we need to act on them.

No point putting blinkers on and telling people to commit suicide when the lights are blinking red/sirens going off on the dashboard.

The bond rate is a signal, and a meaningful one, this whole thread smells of FF spin, they dont like what they are hearing and dont like admitting they made a mistake so they blame someone else. that worked out great before....

Scofflaw

ei.sdraob wrote: »

"Helping us" is a positive side-effect. A feedback mechanism.

We need feedback mechanisms and more importantly we need to act on them.

No point putting blinkers on and telling people to commit suicide when the lights are blinking red/sirens going off on the dashboard.

The bond rate is a signal, and a meaningful one, this whole thread smells of FF spin, they dont like what they are hearing and dont like admitting they made a mistake so they blame someone else. that worked out great before....

Unfortunately, as was pointed out in the post I quoted, the bond market did not offer us any useful feedback through the period where we created the current situation. In that sense, their feedback is like that provided by the fair-weather friends of the wealthy profligate - they're all over us when we're flush, and won't return our calls when we're out of cash. The same goes for the banks, and for the same reason - the principal issue in giving credit (or buying debt) is the question of whether the borrower can repay. Like every other credit institution, the bond markets are happiest lending to you when you don't need them to, and that's before we get into the issue of herd mentality and media spin.

Looking around these and other forums, and indeed the media, suggests there's a very visible segment of the Irish people that hasn't accepted the fact that there's no easy way to get out of this, and nobody to blame but ourselves. Until that changes, people in countries unfamiliar with Ireland are going to assume that we're heading into singificant social unrest and populism, something which is inevitably bad for the bond markets. Whether they're right or not is another question, but one which has little to do with their perception and hence the price of Irish bonds.

cordially,
Scofflaw

rumour

Scofflaw wrote: »

Unfortunately, as was pointed out in the post I quoted, the bond market did not offer us any useful feedback through the period where we created the current situation. In that sense, their feedback is like that provided by the fair-weather friends of the wealthy profligate - they're all over us when we're flush, and won't return our calls when we're out of cash. The same goes for the banks, and for the same reason - the principal issue in giving credit (or buying debt) is the question of whether the borrower can repay. Like every other credit institution, the bond markets are happiest lending to you when you don't need them to, and that's before we get into the issue of herd mentality and media spin.

It is just so entirely naive. We all learned(maybe not all, but who doesn't know it?) the story of the prodigal son when we were what four,five and we walked into the problem. This story is nearly as old as history itself. We must learn to be responsible.

Scofflaw wrote: »

Looking around these and other forums, and indeed the media, suggests there's a very visible segment of the Irish people that hasn't accepted the fact that there's no easy way to get out of this, and nobody to blame but ourselves. Until that changes, people in countries unfamiliar with Ireland are going to assume that we're heading into singificant social unrest and populism, something which is inevitably bad for the bond markets. Whether they're right or not is another question, but one which has little to do with their perception and hence the price of Irish bonds.

I agree with you, I cannot help but question why? The media can bend the truth, shrewd politicians, lawyers or indeeed anybody with an agenda can manipulate the truth. Language permits this. Mathematics as a form of communication on the otherhand sets out to deliberately avoid these distortions, that's why people use it for transactions with money, its as close to the truth as can be communicated. How we use the truth is then a philosphical question which is off the agenda in ireland (In France it is a core second level subject). A very good letter was written in the IT yesterday on this subject, but in this country our education system cannot even contemplate its failings such are the emotive versions of the truth that arise. Why because it does not deal in truths, it is governed by emotion, needless to say its hardly surprising that this is then instilled in the country as a whole. If only we could accept this. If if if....

If you can meet with triumph and disaster
And treat those two imposters just the same;
If you can bear to hear the truth you've spoken
Twisted by knaves to make a trap for fools,
Or watch the things you gave your life to broken,
And stoop and build 'em up with wornout tools;

Nobody or the majority of people on this island don't really want the truth, thats my conclusion anyway.If we could acknowledge the truth then maybe we would have a chance but so many people want this altered to suit themselves, governed primarily by fear (an emotion, which is easy to prey on). How do we change this in Ireland? This is a fundamental of life, dealing with and acknowledging the truth, but has it ever been different, anywhere? Lots of emotion, little rationale.

Apologies if this rambles..

johnnyskeleton

jank wrote: »

Dev et all is turning in his grave.

Dev would do the same or worse to be honest.

ei.sdraob

Scofflaw wrote: »

Unfortunately, as was pointed out in the post I quoted, the bond market did not offer us any useful feedback through the period where we created the current situation. In that sense, their feedback is like that provided by the fair-weather friends of the wealthy profligate - they're all over us when we're flush, and won't return our calls when we're out of cash. The same goes for the banks, and for the same reason - the principal issue in giving credit (or buying debt) is the question of whether the borrower can repay. Like every other credit institution, the bond markets are happiest lending to you when you don't need them to, and that's before we get into the issue of herd mentality and media spin.

Looking around these and other forums, and indeed the media, suggests there's a very visible segment of the Irish people that hasn't accepted the fact that there's no easy way to get out of this, and nobody to blame but ourselves. Until that changes, people in countries unfamiliar with Ireland are going to assume that we're heading into singificant social unrest and populism, something which is inevitably bad for the bond markets. Whether they're right or not is another question, but one which has little to do with their perception and hence the price of Irish bonds.

cordially,
Scofflaw

Once again, why should have they cared when it seemed that our economy was sound and FF where travelling the world boasting how rich we are?
They lend us money, they dont care what we spend it on provided they get paid back + interest.
There now seems to be fear of a full or partial default now (40% chance in 5 years) so suddenly they are worried that they gave money to a government which is wasting money like not tomorrow.

lets say for example we discover tomorrow a 100 billion oil field underneath Leinster house, the interest rates would go down overnight, but of course our structural problems will remain there and will resurface in few years once the oil is gone.
This is sort of what happened in Greece, the EU bought the Greeks 2-3 years to get their house in order, if they dont in 2-3 years time they be back to square one, their interest rates went down after the EU money was thrown at them but the underlying issues still remain.

To summarize the people giving us money only care about being paid back, the bond rate is a signal correlating to their confidence in our ability to pay them back, not our actual ability to pay them back.
I think it is foolish to dismiss out of hand this indicator. Sticking our heads in the sand worked out great before for us.

Now IMF on the other hand do care where their money goes if they invest in a basketcase country, since interfering in economies is their job ....

Zynks

ninty9er wrote: »

Current Bond Rate is Meaningless to Debt Position

That is the same as saying that it doesn't matter if the fridge is empty and all shops are closed for the week because you just had the last piece of turkey that was in the fridge.... we are net spenders, we need loans. The most 'optimistic' government view is that we will 'only' need to borrow a few extra billion a year by 2014. It just doesn't add up!

If I was an Irish government bond holder I would be seriously p***d off for them nationalizing private banking debt and becoming insolvent.

ArtSmart

I think the OP point is , i think, that current bond prices are simply a mkt response to particular news - primarily the German announcement (http://www.tribune.ie/article/2010/nov/07/german-policy-spooks-bond-markets-but-we-only-have/)

it's unimportant to our current situation in that it is circular / self contained, ie it is not a direct response to Ireland perceived ability to honour it's debts, but a response to perceived changes in the surrounding safe guards.
but these perceptions will change as Merkle soothes the mkt with a different rhetoric - it's in Germany's interest to do so, as the very existence of the euro and the EU depends upon it.

johnnyskeleton

Another point (thanks to yoganmahew on tpp) is that irrespective of the Irish Government's borrowing requirements, the Irish banks need to renew bonds over the next few months and the rates they can borrow are at least what the Irish Government main rates are.

So even if the Government doesn't borrow anything extra for budgetary purposes until next year, they will be borrowing via the banks to keep those institutions ticking over at these higher rates.

Scofflaw

johnnyskeleton wrote: »

Another point (thanks to yoganmahew on tpp) is that irrespective of the Irish Government's borrowing requirements, the Irish banks need to renew bonds over the next few months and the rates they can borrow are at least what the Irish Government main rates are.

So even if the Government doesn't borrow anything extra for budgetary purposes until next year, they will be borrowing via the banks to keep those institutions ticking over at these higher rates.

I'm not sure they need to tap the markets much either, though:

Still, banks do not need to replace the total €50bn of bonds that are due to mature this year as their balance sheets shrink.

Jim Ryan, of bond market specialists Glas Securities, said the country's lenders would be looking to raise €30bn to €35bn at a maximum this year, but would really only need to raise between €20bn and €25bn.

"After all, banks will have €80bn less assets to fund by the end of this year as the NAMA transfers are completed," Mr Ryan said.

He added that participants in NAMA are expected to receive about €43bn of bonds for their risky loans. These can be used as collateral to tap the ECB for funding, if necessary.

There's also the ECB credit facility, which remains open to Irish state-guaranteed banks:

The European debt crisis has forced the ECB to extend unlimited lending to euro-area banks into 2011, delaying its exit from the so-called non-standard measures.

The ECB wants to wean banks off its extra funding, introduced to help fight the crisis, and see them return to the interbank market.

The reliance of Irish banks on ECB funding has increased to between €80 billion and €100 billion as bond markets remain closed to the State-guaranteed banks due to the wider debt crisis.

cordially,
Scofflaw

johnnyskeleton

Scofflaw wrote: »

I'm not sure they need to tap the markets much either, though:



There's also the ECB credit facility, which remains open to Irish state-guaranteed banks:



cordially,
Scofflaw

The concern is that they will not get overnight deposits, which are essential for the day to day running of the bank, and the ECB will provide any further funding.