NTMA Debt swap on markets

Stheno

Is this a good sign in terms of how we are being viewed internationally compared to 12/18 months ago?

Irish Times

NTMA successfully swaps €3.5 billion of bond debt

The National Treasury Management Agency (NTMA) has successfully swapped more than €3.5 billion of debt in its first return to the bond markets since September 2010.

Seen as major boost to the economy, the agency’s auction this afternoon is likely increase the country’s chances of exiting the EU-IMF bailout on schedule.

The NTMA swapped a note due to be repaid in 2014 for one maturing a year later in 2015 to smooth its funding requirements.

Around €12 billion of government debt was due for repayment in 2014, the year after the EU/IMF funding programme ends.

This will now be reduced to a more manageable €8.5 billion as a result of today's auction.

The new paper was offered to investors at a rate of 5.15 per cent, slightly higher than the 4.9 per cent rate yield on the older bonds.

The move marks the NTMA’s first significant engagement with the bond market for over a year.

The NTMA said earlier the new offer was in response to approaches from market participants and will help address demand for Irish Government paper maturing in 2015 that is currently unmet. It will also reduce the size of the maturities which will be required to be met in January 2014.

“This exercise will help us smooth the maturity of the bond due in January 2014. The decision to undertake this now reflects substantial demand among investors for our short-dated paper and the resulting decline in yields on Irish paper recently,” said a spokesman for the agency.

Analysts have welcomed the move.

"This is a very smart move by the NTMA, as it lessens the 2014 funding cliff," said Cathal O'Leary, head of fixed income at NCB Stockbrokers. "Plus if they switch at anything less than par, it's a gain for Ireland's balance sheet, while they maintain goodwill in the market."

The yield on the 4 per cent 2014 security slid 33 basis points to 5.30 per cent following this morning's announcement with the price rising €6 per €1,000 face amount, to €97.63.

Dannyboy83

I wouldn't go getting over excited, but it's a nice psychological boost.

hmmm

I think it's a huge deal. We're back on the markets borrowing at a rate we wouldn't have believed a few months ago. This is all happening at least 6 months before the NTMA were planning on dipping their toes in the water. It gives us ammunition to take to the ECB to get a deal on the Anglo notes, and it makes it less likely that we will need to look for a second bailout.

What's not to like?

Good loser

hmmm wrote: »

I think it's a huge deal. We're back on the markets borrowing at a rate we wouldn't have believed a few months ago. This is all happening at least 6 months before the NTMA were planning on dipping their toes in the water. It gives us ammunition to take to the ECB to get a deal on the Anglo notes, and it makes it less likely that we will need to look for a second bailout.

What's not to like?

You might be over egging it there hmmm. Hopefully not.

jased10s

i really dont understand why any country should have to go to the markets and borrow. Ireland as a company is bleeding money , and any company would be closed down long ago.

Is not a good economy a profit making ecomony ?

coolshannagh28

Good news however bear in mind that the ECB has backstopped the EU bond market since Draghi toolk over.. it is an important statement of intent from the ECB but only time will tell if this will suffice to solve the Eurozone DEBT problem !

later12

It's a good development. Although it's quite a bit different to a real bond auction in the typical sense.

It does complement the notional refinancing rate as we understand it to be, from looking at the secondary markets where benchmark Irish debt is currently trading at about 7½%, whereas Portugal is over 14%, and we see our spread narrowing against Spain, who is currently on about 5% for the equivalent debt. So it's a reassurance that the economy is on the right track.

jased10s wrote: »

i really dont understand why any country should have to go to the markets and borrow. Ireland as a company is bleeding money , and any company would be closed down long ago.

Is not a good economy a profit making ecomony ?

Not necessarily, no. An economy is not much like a company in an economic sense.

Just in relation to your post, this debt swap was not a bond auction in the traditional sense - Ireland did not sell any debt, the NTMA simply exchanged it in order to re-jig the redemption plan. The amount of debt in stock has not materially changed.

fliball123

later10 wrote: »

It's a good development. Although it's quite a bit different to a real bond auction in the typical sense.

It does complement the notional refinancing rate as we understand it to be, from looking at the secondary markets where benchmark Irish debt is currently trading at about 7½%, whereas Portugal is over 14%, and we see our spread narrowing against Spain, who is currently on about 5% for the equivalent debt. So it's a reassurance that the economy is on the right track.


Not necessarily, no. An economy is not much like a company in an economic sense.

Just in relation to your post, this debt swap was not a bond auction in the traditional sense - Ireland did not sell any debt, the NTMA simply exchanged it in order to re-jig the redemption plan. The amount of debt in stock has not materially changed.

Sorry guys but this is a fudge the banks are buying these bonds with money issued at 1% and buying up Euro (including Irish bonds) at 5% ...This is one of the conditions on the ECB keeping the rate at 1% so ineffect we have ECB lending money to distressed banks to buy Irish debt ...and in order to pay the irish debt the gov need to borrow from the troika which includes the ECB so ineffect money is just changing hands going around in a circle....This will be cottoned on to by the markets and watch the rates rocket back up

Scofflaw

fliball123 wrote: »

Sorry guys but this is a fudge the banks are buying these bonds with money issued at 1% and buying up Euro (including Irish bonds) at 5% ...This is one of the conditions on the ECB keeping the rate at 1% so ineffect we have ECB lending money to distressed banks to buy Irish debt ...and in order to pay the irish debt the gov need to borrow from the troika which includes the ECB so ineffect money is just changing hands going around in a circle....This will be cottoned on to by the markets and watch the rates rocket back up

The troika includes the ECB as a management partner, but none of the bailout facility money comes from the ECB. The bailout facility money comes from the EFSF, the EU, the IMF and a couple of bilaterals.

cordially,
Scofflaw

fliball123

Scofflaw wrote: »

The troika includes the ECB as a management partner, but none of the bailout facility money comes from the ECB. The bailout facility money comes from the EFSF, the EU, the IMF and a couple of bilaterals.

cordially,
Scofflaw

The money that that banks are using to buy up these bonds is coming from the ECB giving at a rate of 1%...Not sure now does the ECB put money into the EFSF ??? McWilliams spotted this and was newstalk saying that the banks are buying up Euro bonds using the cheap money from ECB in order to bring the bond prices down which is working but how long before the banks who are in real sh1t state get into more trouble when they have to pay these loans back?

WalterMitty

As the song goes DONT BELEIVE THE HYPE.
Interesting it happens day of Anglo bond payment.
http://trueeconomics.blogspot.com/2012/01/2512012-return-to-bond-markets.html

No doubt whoever did swap with NTMA was happy to do a favour for Ireland.

later12

fliball123 wrote: »

Sorry guys but this is a fudge the banks are buying these bonds with money issued at 1% and buying up Euro (including Irish bonds) at 5%

That was part of the bloody point of the low short term funding. I mean ideally, that money would have been injected directly into the European consumer economy by the financial institutions, but that was never a serious runner given the requirement for high liquid assets that Europe itself has demanded of the banking system.

It isn't "a fudge", it's a way of giving banks the time to get their balance sheets in order whilst at the same time, reducing the notional or observed refinancing costs of the European peripheral sovereigns - just this morning Italy sold €4bn at 3.75%; yesterday, Ireland swapped €3.5bn at 5.5% - don't seriously think that the ECB funding arrangement is not a significant and welcome aspect of these developments.

fliball123

later10 wrote: »

That was part of the bloody point of the low short term funding. I mean ideally, that money would have been injected directly into the European consumer economy by the financial institutions, but that was never a serious runner given the requirement for high liquid assets that Europe itself has demanded of the banking system.

It isn't "a fudge", it's a way of giving banks the time to get their balance sheets in order whilst at the same time, reducing the notional or observed refinancing costs of the European peripheral sovereigns - just this morning Italy sold €4bn at 3.75%; yesterday, Ireland swapped €3.5bn at 5.5% - don't seriously think that the ECB funding arrangement is not a significant and welcome aspect of these developments.

But this is being touted as that we are back in the markets when its an aggrement between the ECB and the banks to do this..We are not really back in the markets...to say otherwise is a falsehood

washman3

fliball123 wrote: »

Sorry guys but this is a fudge the banks are buying these bonds with money issued at 1% and buying up Euro (including Irish bonds) at 5% ...This is one of the conditions on the ECB keeping the rate at 1% so ineffect we have ECB lending money to distressed banks to buy Irish debt ...and in order to pay the irish debt the gov need to borrow from the troika which includes the ECB so ineffect money is just changing hands going around in a circle....This will be cottoned on to by the markets and watch the rates rocket back up

Ssssssshhhh

dont upset the vested interests..!!:D

antoobrien

fliball123 wrote: »

Sorry guys but this is a fudge the banks are buying these bonds with money issued at 1% and buying up Euro (including Irish bonds) at 5% ...This is one of the conditions on the ECB keeping the rate at 1% so ineffect we have ECB lending money to distressed banks to buy Irish debt ...and in order to pay the irish debt the gov need to borrow from the troika which includes the ECB so ineffect money is just changing hands going around in a circle....This will be cottoned on to by the markets and watch the rates rocket back up

The 1% ECB money doesn't come into this equation because no money changed hands.

Bonds are effectively IOUs - all we did was offer existing bondholders a piece of paper saying they'd be paid at a slightly different date. There's was an incentive of an extra 0.5% interest rate in it, so it'll cost us probably an extra 50m over the 3 years (the old bonds were 4%). The benefit to use is that instead of having to pay out €11.7 billion in January 2014, we're now paying out about €8.2 billion.

I wonder if the "success" has anything to do with the fact that the Troika are funding us through the end of 2013 and we'd have to pay these bonds from a combination of existing cash reserves and bonds swaps.

later12

fliball123 wrote: »

But this is being touted as that we are back in the markets

Well it shouldn't be (if it is touted as such). Ireland is not back in the markets,and the question of whether or not it ever properly returns by itself to the markets has very little to do with Ireland at all.

But the issue of the ECB being behind the credit line that is being used to buy up peripheral debt is not a problem; I don't consider how anyone can consider it so. I sure as hell don't want to see either a credit crunch take hold nor peripheral debt values fall significantly - and I'd love to know of a better alternative from the ECB's perspective, in terms of how to prevent such events from unfolding?

Scofflaw

fliball123 wrote: »

The money that that banks are using to buy up these bonds is coming from the ECB giving at a rate of 1%...Not sure now does the ECB put money into the EFSF ???

Nope. The EFSF money comes from the countries that are part of the fund.

fliball123 wrote: »

McWilliams spotted this and was newstalk saying that the banks are buying up Euro bonds using the cheap money from ECB in order to bring the bond prices down which is working but how long before the banks who are in real sh1t state get into more trouble when they have to pay these loans back?

Did he offer to prove that this was what was happening? You need not waste your time looking for an answer, by the way, because McWilliams hasn't ever offered proof for his claims to date.

There's an element of "so what?" though. It sounds somehow dismissive, but unless Irish banks bought all of the swap using only ECB money, it's kind of a non-issue.

cordially,
Scofflaw

fliball123

antoobrien wrote: »

The 1% ECB money doesn't come into this equation because no money changed hands.

Bonds are effectively IOUs - all we did was offer existing bondholders a piece of paper saying they'd be paid at a slightly different date. There's was an incentive of an extra 0.5% interest rate in it, so it'll cost us probably an extra 50m over the 3 years (the old bonds were 4%). The benefit to use is that instead of having to pay out €11.7 billion in January 2014, we're now paying out about €8.2 billion.

I wonder if the "success" has anything to do with the fact that the Troika are funding us through the end of 2013 and we'd have to pay these bonds from a combination of existing cash reserves and bonds swaps.

But you forget the problem here is this and I will put this together as I view it.

The ECB NTMA are calling this amazing ... The ECB brought up long term repo financing which allows banks borrow at 1%. The ECB is not allowed buy gov debt so they are lending the money to the banks at this 1% on the condition that the banks buy gov bonds at 5/6%. They have done this as the whole world is trying to get shut of thier Euro bonds. Therefore the price is being driven down by these banks not markets buying them. The banks are being lent hundreds of billions at 1% and lending this to the state via the NTMA at 6% (nice 5% profit for the banks) The Banks are giving the bad loans and other rubbish on their balance sheet as callatoral....So they are buying government debt with money underwritten by really bad collateral..


So in effect Bust irish banks are getting money from the ECB this is being forwarded to at present an insolvent government (at a rate of 5%) in order for the banks to buy paper of the insolvent government that lent them the money in the first place..Its a load of horlicks does no one see this circle with a nice 5% being given to the banks??

later12

Scofflaw wrote: »

Nope. The EFSF money comes from the countries that are part of the fund.

OK forgive me for this nitpicking point I'm about to make but we need to remember that the guaranteeing countries have very little to do with the funding realised in their name.

It's auctioned by the EFSF (who, it seems, has even stooped to bidding on its own debt these latter days) and I don't know if the ECB is active at EFSF auctions, but its special short term funding arrangements do indeed provide the capital for these sorts of debt auctions, as they do for events like the Irish swap yesterday or the italian & Spanish auctions more recently.

Scofflaw

later10 wrote: »

OK forgive me for this nitpicking point I'm about to make but we need to remember that the guaranteeing countries have very little to do with the funding realised in their name.

It's auctioned by the EFSF (who, it seems, has even stooped to bidding on its own debt these latter days) and I don't know if the ECB is active at EFSF auctions, but its special short term funding arrangements do indeed provide the capital for these sorts of debt auctions, as they do for events like the Irish swap yesterday or the italian & Spanish auctions more recently.

That's a fair point, but I think doesn't address the confusion whereby people believe that because the ECB is part of the troika it is providing in its own name part of the bailout facility.

So in effect Bust irish banks are getting money from the ECB this is being forwarded to at present an insolvent government (at a rate of 5%) in order for the banks to buy paper of the insolvent government that lent them the money in the first place..Its a load of horlicks does no one see this circle with a nice 5% being given to the banks??

Who we in turn own.

cordially,
Scofflaw

fliball123

Scofflaw wrote: »

That's a fair point, but I think doesn't address the confusion whereby people believe that because the ECB is part of the troika it is providing in its own name part of the bailout facility.



Who we in turn own.

cordially,
Scofflaw

Exactly say there is another clusterfcuk within the banks who owns this debt?

antoobrien

fliball123 wrote: »

But you forget the problem here is this and I will put this together as I view it.

The ECB NTMA are calling this amazing ... The ECB brought up long term repo financing which allows banks borrow at 1%. The ECB is not allowed buy gov debt so they are lending the money to the banks at this 1% on the condition that the banks buy gov bonds at 5/6%. They have done this as the whole world is trying to get shut of thier Euro bonds. Therefore the price is being driven down by these banks not markets buying them. The banks are being lent hundreds of billions at 1% and lending this to the state via the NTMA at 6% (nice 5% profit for the banks) The Banks are giving the bad loans and other rubbish on their balance sheet as callatoral....So they are buying government debt with money underwritten by really bad collateral..


So in effect Bust irish banks are getting money from the ECB this is being forwarded to at present an insolvent government (at a rate of 5%) in order for the banks to buy paper of the insolvent government that lent them the money in the first place..Its a load of horlicks does no one see this circle with a nice 5% being given to the banks??

If the bonds issued yesterday were new bonds your analysis would be fairly accurate - but they weren't.

Here's what actually happened:

Before
Irish Government Bonds due in January 2014: €11.7 billion @4%

After
Irish Government Bonds due in January 2014: €8.2 billion @4%
Irish Government Bonds due in February 2015: €3.5 billion @4.5%

Amount of money changing hands €0.00

So the 1% money you're harping on about is not a factor.

One of the reasons it's being called amazingly successful is that the expected uptake was less than €1 billion - so they got over 3 times what they expected.

It's worth noting that what's happened here is a rescheduling of debt - which has been described in the past by some commentators as a default event - and the markets are happy with the situation.

Personally I think the investors took a look at their bonds, were acutely aware that the troika funding runs out the month before the original bonds fall due. I wouldn't be at all surprised if it came to light that some of the bond holders split their holdings, keeping some 2014 bonds while getting a bit of extra return for 2015 bonds and increasing the chances of getting paid in full.

fliball123

antoobrien wrote: »

If the bonds issued yesterday were new bonds your analysis would be fairly accurate - but they weren't.

Here's what actually happened:

Before
Irish Government Bonds due in January 2014: €11.7 billion @4%

After
Irish Government Bonds due in January 2014: €8.2 billion @4%
Irish Government Bonds due in February 2015: €3.5 billion @4.5%

Amount of money changing hands €0.00

So the 1% money you're harping on about is not a factor.

One of the reasons it's being called amazingly successful is that the expected uptake was less than €1 billion - so they got over 3 times what they expected.

It's worth noting that what's happened here is a rescheduling of debt - which has been described in the past by some commentators as a default event - and the markets are happy with the situation.

Personally I think the investors took a look at their bonds, were acutely aware that the troika funding runs out the month before the original bonds fall due. I wouldn't be at all surprised if it came to light that some of the bond holders split their holdings, keeping some 2014 bonds while getting a bit of extra return for 2015 bonds and increasing the chances of getting paid in full.

Except that the people uptaking these bonds are the banks who is using borrowed money to do so at 1% so it is a factor

antoobrien

fliball123 wrote: »

Except that the people uptaking these bonds are the banks who is using borrowed money to do so at 1% so it is a factor

Banks & other investors who gave the NTMA this money several years ago, so it cost them nothing to do this yesterday, you do understand this right?

fliball123

antoobrien wrote: »

Banks & other investors who gave the NTMA this money several years ago, so it cost them nothing to do this yesterday, you do understand this right?

Is it not that the banks who have been given money by the ECB are buying these bonds now not the markets not anyone else but the solely the banks...They are buying these off of other investors and banks who bought them years ago and are selling them before they mature

antoobrien

fliball123 wrote: »

Is it not that the banks who have been given money by the ECB are buying these bonds now not the markets not anyone else but the solely the banks...They are buying these off of other investors and banks who bought them years ago and are selling them before they mature

I think you're mixing up the fact that the markets have started loosening up, due to the liquidity the ECB has given bank (investors in general are less nervous), with what happened yesterday. Whomever had the bonds yesterday to swap bought them before yesterday.

The may have been some banks looking to get back into Irish bonds seeing as we are keeping our promises, but this was a snap announcement (it was being planned, but as far as everyone knew it was for April or later) - so I don't think there would have been widespread buying in anticipation of this.

Given the state of the bond markets, in all likelihood any bonds that changed hands did so last year, before the ECB started issuing the extremely cheap money around Christmas.

Edit - Most of the cheap money would have gone towards Spanish & Italian bonds, as they were the reason for the injection in the first place.

coolshannagh28

The question to be asked is whether there is a genuine bond market or an ECB backstop ,I d say the latter . Maybe if they buy bonds long enough they can fool the market!