Markets liking what they see with Ireland

darkman2

Government gets confidence boost with successful €1bn bond auction


Wednesday March 25 2009

Ireland's successful sale of €1bn in bonds, in its first auction since 2005, showed investor concern about the risk of default is overblown and the securities offer value, investment bank ING said yesterday.

The National Treasury Management Agency (NTMA) sold the bonds to raise cash as the economic slump hoovers up tax revenue.

Irish 10-year bonds rose after the auction, reducing the spread between the securities and German benchmark notes to the narrowest in three weeks.

The cost of insuring against a government default also declined, credit-default swap prices showed.

"This is an opportunity to buy," said Padhraic Garvey, head of investment-grade bond strategy at ING in Amsterdam.

"Ireland's bond spread overshot and talk about the country potentially defaulting on its debt was just ridiculous and far-fetched."

The three-year €300m bond was 3.8 times oversubscribed while the 10-year €700m was 2.7 times over, the NTMA said.

"The healthy demand is really good news," said Rossa White, chief economist at Davy Stockbrokers. Moreover, spreads on the 2020 note have tightened by 30 basis points in the secondary market already, he added.

Analysts added that the CDS went too far in February when worries about Ireland were at their highest, and it has now converged with the cash market.

The spread between Irish and German 10-year debt narrowed 24 basis points yesterday to 249. The average spread during the past 10 years between Irish and German 10-year debt was 18 basis points, according to Bloomberg analysis.

However, market watchers added that the key event in the Irish economic calender is the April 7 Budget.

"If hard decisions are made on current Government spending, we could see a significant further tightening of Irish spreads vis-a-vis Germany," Mr White said.

Although this was the first auction in some time, Ireland has already had several fund raisings via syndication whereby governments use banks to find buyers for the securities rather than offer the debt through auction.

In January and February the NTMA raised €10bn in two bond sales via syndication.

Other commentators were also cheered by the latest news.

"Ireland chose a fantastic time to put their toes back in the water," said Peter Chatwell, a fixed-income strategist in London at Calyon, the investment-banking unit of Credit Agricole SA. "Risk appetite has improved and the spread is pulling in, suggesting the auction inspired a lot of confidence."

Markets agree default risk is 'overblown'

Investment Bank ING's view that the auction of the €1bn of bonds was a sign that investor concern about our risk of default is excessive and that the securities offer value is a positive sign.

But the bank's Padhraic Garvey is not the first with this view. Last month JP Morgan said the Irish banks still need more capital but the crisis isn't as dire as the credit default swap pricing implied then.

In a worst-case scenario, the analysts led by Christian Leukers see the country's indigenous lenders writing off €26.9bn of bad loans over the coming years. This would require a further €12.9bn of capital injections, in addition to the €7bn being pumped into Allied Irish Banks and Bank of Ireland.

The JP Morgan report added that while further support for the banks is likely to require external funding, this is likely to be costly rather than impossible.

Mr Garvey also said yesterday that unlike the US and the UK, Ireland is taking the pain on the chin instead of postponing the day of reckoning. And the markets appeared to agree with the observation that the risk of default is overblown. The spread between Irish and German 10-year debt narrowed 24 basis points yesterday to 249 basis points on the back of the auction.

In addition, other analysts said that there is an appetite for risk currently which should also bode well for Ireland going forward. While all eyes will be on the upcoming budget and the further aid the banks may need, positive vibes from the international markets are welcome in these trying times.

- Ailish O'Hora

Irish Independent 25th March


Worth pointing out the UK failed on the same day to raise their bonds on the market. Ireland's was almost 4 times over subscribed. Clearly amidst the doom and gloom this is excellent news, without wanting to understate the serious challenges that lie ahead - they obviously see something we don't!

daveirl

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nesf

Woohoo better than Greece!!!


Oh wait..

daveirl

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nesf

daveirl wrote: »

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Pfft, your logic and understanding has no place on these white pages sir! Take thee to the salmon ones!

Flamed Diving

daveirl wrote: »

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daveirl wrote: »

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Booooooooooooooo!

mike65

daveirl is George Lee!

Did Brendan Keenan pen those articles?

darkman2

I think the fact remains that Ireland sold it's bonds and the UK failed to sell it's gilts - end of story. They clearly believe that our quick fire, take the pain now approach is going to benefit us and them. The UK is in denial and acting much slower then us for all our faults. The UK will not raise the money it needs - we will. I think the markets respect our restraint and cuts more then the excessive borrowings of the UK and US which could ultimately, in the UK, lead to bankruptcy of the state. Fact is we are not as risky as the UK because we are dealing with our crisis. The markets believe we will adjust much faster.

Keenan had no input in articles btw.

darkman2

daveirl wrote: »

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Eh we ALWAYS paid twice as much as Germany. CDS Swaps or risk of default is narrowing fast between the two countries. Default risk here is insane. We will not default and the markets are realising that. Put it this way on the same day the UK tried to raise it's debt - they failed - we succeeded - now I think the markets may be taking a shining to us - we are over subscrided x4 - the UK can't even raise 1.75bn of 140bn!!! Browns spending plans out the window.

Fratton Fred

darkman2 wrote: »

I think the fact remains that Ireland sold it's bonds and the UK failed to sell it's gilts - end of story. They clearly believe that our quick fire, take the pain now approach is going to benefit us and them. The UK is in denial and acting much slower then us for all our faults. The UK will not raise the money it needs - we will. I think the markets respect our restraint and cuts more then the excessive borrowings of the UK and US which could ultimately, in the UK, lead to bankruptcy of the state. Fact is we are not as risky as the UK because we are dealing with our crisis. The markets believe we will adjust much faster.

Keenan had no input in articles btw.

You are comparing 40 year bonds with 10 year ones.

your schedenfraude is misplaced as you are comparing apples with oranges.

ardmacha

I think the UK is in denial to some extent. Interesting the subsequent index linked bonds sale went well. The UK approach with quantitative easing, devaluation and the like is going to lead to higher inflation, so index linked gives a better return than a conventional coupon and index linked allows pension funds largely protect against increases in their liabilities.

Fratton Fred

It will if it isn't controlled. The quantitive easing is a big risk and no one knows what the outcome will be at the moment, but doing nothing is not an option. I don't think people in the UK are in denail, all the papers were talking of IMF loans etc. And unemployment has gone through the roof. It is daft to compare the Irish and UK markets though, they are completely different. Besides, the Irish economy is more than enough for us all to worry about, a 7.5% reduction in the las quarter is huge.

thebman

One thing to be concerned with is we export most to Britain do we not?

Bad news for them is still bad news for us until we find alternative export markets that can take the excess (who is actually doing well at the moment though :-/).

Overall we aren't doing as badly as we could be doing I think. Some done, a lot more to do probably describes it best.

I don't know enough about this so I'll leave you all to destroy my post :P

daveirl

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