Irish yields collapse following deal

Scofflaw

Anyway, getting back on topic - 9 year yields are down again this morning to 6.39% from 7.11% before the announcement.

5 year bonds have dropped from 6.33% to 5.33% over the last few days.

2 year bonds from 5.97% to 4.95%.

Those are significant drops. For comparison, the last time 9/10 year bonds were at that level was September 2010 - before the bailout.

cordially,
Scofflaw

Duggys Housemate

Which means we may be able to go back to the market for short term bonds.

antoobrien

Duggys Housemate wrote: »

Which means we may be able to go back to the market for short term bonds.

Realistically we'd want to see the short term stabalizing below 4% before issuing new debt (as opposed to rolling over existing) as the troika rates are about 3.5%.

darkman2

Scofflaw wrote: »

Anyway, getting back on topic - 9 year yields are down again this morning to 6.39% from 7.11% before the announcement.

5 year bonds have dropped from 6.33% to 5.33% over the last few days.

2 year bonds from 5.97% to 4.95%.

Those are significant drops. For comparison, the last time 9/10 year bonds were at that level was September 2010 - before the bailout.

cordially,
Scofflaw

Irish 9 year benchmark now trading inside Spanish 10 year


Spanish 10 year 6.360% (+0.47%)

Irish 9 year 6.347%(-1.84%)

roro2

I don't think the troika are giving us an option about whether to issue new T-Bills. With the market the way it is, now is as good a time as any. Within the week I'd say.

darkman2

Well the 2 year bond yield is under 5%

http://www.bloomberg.com/quote/GIGB2YR:IND/chart


That is still too elevated but it's a level where the NTMA could consider dipping it's toe in the market for a modest amount of money just to test demand and see how much lower the actual cost would be. Realistically we would want the 2 year bond well under 4% I think.

darkman2

http://www.bloomberg.com/video/pre-bailout-level-bond-yield-offers-ireland-relief-d6mqx0_CSAOYYHf~tnSrBQ.html

darkman2

BIG test of sentiment. Reuters reporting Ireland to return to the market on Thursday to issue short term debt. First time since 2010:)


9 year yields down to 6.2% this morning

http://www.bloomberg.com/quote/GIGB9YR:IND/chart

roro2

Reuters reporting Ireland to return to the market on Thursday to issue short term debt.

€500m of 3-month bills.
Spain paid 2.4% for a similar maturity last week.

Sponge Bob

They will issue "Commercial Paper" (not strictly bonds) I reckon. Couple of 3 and 6 month CP issuances over the summer and then dip the toe into 1-3 year maturity bond issuance.

antoobrien

Sponge Bob wrote: »

They will issue "Commercial Paper" (not strictly bonds) I reckon.

They'll be issuing €500m Irish Treasury Bills.

It's described by NTMA as

its first such auction since September 2010

so it looks like bonds.

Sponge Bob wrote: »

Couple of 3 and 6 month CP issuances over the summer and then dip the toe into 1-3 year maturity bond issuance.

I'd say it's likely that we'll see another bond switch like we saw in January/February of this year to further reduce the amount of 2014 bonds outstanding (currently €8bn).

darkman2

Irish 9 year yield - 6.273% (-1.12%)

Irish 5 year yield - 5.26% (-0.28%)

Duggys Housemate

So what does this prove, either way, about burning the bond holders? Effectively if the bank debt is taken over from us, or it appears to be, yields fall.

So, what does it prove?

darkman2

Duggys Housemate wrote: »

So what does this prove, either way, about burning the bond holders? Effectively if the bank debt is taken over from us, or it appears to be, yields fall.

So, what does it prove?

To me it proves that had we followed the more radical suggestions we would probably be far more fecked then we are now!

Duggys Housemate

darkman2 wrote: »

To me it proves that had we followed the more radical suggestions we would probably be far more fecked then we are now!

But the drop in yields is because of the perceived potential drop in overall sovereign debt, allied with the clear commitment to reducing the deficit. Are we saying that market sentiment would be different were we to reduce the bank portion of the sovereign debt unilaterally?

antoobrien

Duggys Housemate wrote: »

But the drop in yields is because of the perceived potential drop in overall sovereign debt, allied with the clear commitment to reducing the deficit. Are we saying that market sentiment would be different were we to reduce the bank portion of the sovereign debt unilaterally?

No the drop is to do with the perception of the ability to a) pay interest and b) finance the capital (i.e. stump up cash or re-issue bonds).

The markets had a perception that the total debt load was somewhere between risky and unsustainable (depending on the analyst). The risk that the bondholders wouldn't get paid meant that higher interest was being demanded to offset any potential losses (and higher CDS costs). This deal is seen as reducing those risks - they can't demand as high interest as they had just last Thursday.

Had we unilaterally said, hey we're not paying back Anlgo (€32bn) it would have raised the risk profile of all Irish debt - including government debt - making it more expensive. Everything from credit cards to car loans would have gotten more expensive. It would have also lessened the likelihood of any Irish organisation of being able to either refinance bonds or issue new ones. Both of these would make unilateral default (i.e. not paying back interest or capital) more likely.

As for actually defaulting on debt, if you want to see what can happen when a country defaults on part of its debt, read up on the economic history of Argentina.

Edit: This article has a good example of the risks of default.

Argentinian bonds that are due for repayment in 2033 are attracting 13% yields, due to the fact that Argentina have defaulted in the past. Any investor willing to take the risk can get 100% of their investment returned in 7 years at these rates and still have the bond - provided they don't do what they did in the past.

Duggys Housemate

Hang on now. we could have just said, we are not honouring the bank debt for legal reasons i.e. Anglo Irish lied. That would have made the clear distinction between debt loaned directly to the sovereign, and bank debt taken on by a different government under strange circumstances.

If we then reduce our debt ratio, the ability to pay back our loans becomes easier. Far from raising interest rates it would have seen the same drop in yields as we have now seen.

darkman2

Irish 9 year bond (6.22%) has fallen below Spanish 9 year bond (6.25%). Extraordinary change in sentiment by any standard. The market thinks Ireland is a safer bet then Spain. Which says more about Spain and the state of the eurozone then it does about Ireland. We are in an IMF program for goodness sake and Spain is seen as more risky long term.

darkman2

Duggys Housemate wrote: »

Hang on now. we could have just said, we are not honouring the bank debt for legal reasons i.e. Anglo Irish lied. That would have made the clear distinction between debt loaned directly to the sovereign, and bank debt taken on by a different government under strange circumstances.

You have to consider who is being burned - European banks. The same banks whose clients buy Irish government debt.

There is this perception out there that the corporations that lend money to Ireland are these evil type of people. These are not individuals. They are large corporate entities and the vast majority lent to this country in good fate. If you burn them they won't lend to you again for a very long time. Iceland is so small it get's away with it. We would not get away with it. We would be locked out of the market indefinitely.

antoobrien

Duggys Housemate wrote: »

Hang on now. we could have just said, we are not honouring the bank debt for legal reasons i.e. Anglo Irish lied. That would have made the clear distinction between debt loaned directly to the sovereign, and bank debt taken on by a different government under strange circumstances.

Possibly if we did let Anglo go bust it would have had to be September 2008, before the bank guarantee scheme. Once we decided to honor its debts, we were on the hook for it, full stop and end of story, no backing out without default. We might have gotten away with saying, we'll pump up to 10bn into Anglo to keep it solvent and no more (but not likely because there are a umber of banks that would have very quickly said but we're owned x, 10 can't be enough).

So I'd like you to consider something else - the viablility of actually letting Anglo go in the first instance - Sept 2008.

It was the 4th major bank failure in September 2008:
Sept 6th Fanny Mae, Freddy Mac (nationalized)
Sept 15th Lehman Brothers (bust)
Sept 30th Anglo (gauranteed, Nationalized in Feb 2009)

It was the 6th major banking insolvency in a year Northern Rock (Sept 2007) & Bear Sterns (Mar 2008) also went bust.

The big problem with letting Anglo go ij Sept 2008 is Contagion. The failures of all these banks caused knock on effects that burst the credit bubble, making it harder for all banks to borrow.

What's contagion - take a look at out bond yields for this year. The bond rates returned to the levels they were at in January. We've done nothing wrong since Januray but the prices have gone up anyways, due to the risks brought up by Greece, Spain & Italy.

tldr
We couldn't let Anglo fail because it would have made a bad situation worse -due to contagion we could have had no functioning banks left after letting Anglo go.

Scofflaw

darkman2 wrote: »

You have to consider who is being burned - European banks. The same banks whose clients buy Irish government debt.

There is this perception out there that the corporations that lend money to Ireland are these evil type of people. These are not individuals. They are large corporate entities and the vast majority lent to this country in good fate. If you burn them they won't lend to you again for a very long time. Iceland is so small it get's away with it. We would not get away with it. We would be locked out of the market indefinitely.

Apologies - I can't help but challenge the "European banks" thing, because while it has been claimed repeatedly, nobody has ever offered any relevant evidence for it, and all the available evidence points to Irish banks (and particularly Anglo) having raised their funds on the UK and US money markets.

Your point stands either way, of course.

cordially,
Scofflaw

Scofflaw

darkman2 wrote: »

Irish 9 year bond (6.22%) has fallen below Spanish 9 year bond (6.25%). Extraordinary change in sentiment by any standard. The market thinks Ireland is a safer bet then Spain. Which says more about Spain and the state of the eurozone then it does about Ireland. We are in an IMF program for goodness sake and Spain is seen as more risky long term.

It's reasonable, if counter-intuitive - we're in an IMF programme, in which we are doing well and meeting targets, while Spain is not in such a programme and therefore could choose not to deal with its issues.

cordially,
Scofflaw

Scofflaw

Duggys Housemate wrote: »

Hang on now. we could have just said, we are not honouring the bank debt for legal reasons i.e. Anglo Irish lied. That would have made the clear distinction between debt loaned directly to the sovereign, and bank debt taken on by a different government under strange circumstances.

From every legal perspective, there is no such thing as "a different government". The government of Ireland is continual and perpetual as long as the State endures - it is merely held by different political parties. The government of Ireland is the government of Ireland at all times.

cordially,
Scofflaw

doc_17

Why are we issuing these?

So we have to pay back 500mil + interest in October? I don't understand! Maybe some of the experts out there can explain it to me?

antoobrien

doc_17 wrote: »

Why are we issuing these?

So we have to pay back 500mil + interest in October? I don't understand! Maybe some of the experts out there can explain it to me?

We have over €3bn of short term debt that maturing (i.e. needs to be paid or renewed) this year. This will be refinancing some of this.

If you're old enough you'll remember credit unions having limits on the first and sometimes second loans of twice savings, so that a member can prove they can and will repay money. This is the same general concept - €500m is not a massive amount of money in the grand scheme of international finance (Iceland have €1.6 bn in loans with the IMF, we have €18bn). We're issuing a small amount (low risk) money to prove we can and will meet our responsibilities.

It'll be interesting to see how yields react after this.

Scofflaw

doc_17 wrote: »

Why are we issuing these?

So we have to pay back 500mil + interest in October? I don't understand! Maybe some of the experts out there can explain it to me?

Partly they're just testing the waters:

Speaking today, NTMA Chief Executive John Corrigan said: “The resumption of Treasury Bill auctions follows an intensive engagement with investors both domestically and overseas during the past 18 months and marks an important first step in our phased re-entry to the capital markets.“

Borrowing short term like this suggests that the NTMA perhaps sees yields as probably continuing to drop, which means this debt could be rolled over into longer term debt in October. If yields rise, it could presumably be rolled back instead. As to what they'll spend the money on...either refinancing existing debt, or to build up Exchequer cash reserves against the end of the troika financing in December 2013.

cordially,
Scofflaw

woodyg

it will be interesting to see the Markets response Thursday.
it may well only be a dip the toe test but it's still the 1st test since Sept 2010.

if the % rate on the interest continues to slide downwards in our favour a partial entry over the next 6-9 months before a full return looks ever more likely.

to get rates below 3.5% would still require a serious change in market sentiment though

daltonmd

doc_17 wrote: »

Why are we issuing these?

So we have to pay back 500mil + interest in October? I don't understand! Maybe some of the experts out there can explain it to me?

From Stephan Kinsella over in Irisheconomy.ie
"Today the NTMA announced Ireland will resume treasury bill auctions, the first since September 2010. This is a really good thing.
But this does not mean Ireland is “back in the bond market”, with all the baggage that phrase has for Irish people these days. We’re back in the Bill market. Journalists in particular should understand the difference between bonds and bills.
While both bonds and bills are debt obligations, in other words when you buy either a bond or a bill you are lending your money to the Irish government, and both are auctioned, bills are used as short term liquidity instruments, typically repaying the bill buyer in 3 months or 6 months or something like that, while bonds carry much longer maturities, usually 2 years, 5 years, 10 years, even 30 years, and are typically used to pay down other maturing bonds or to finance state expenditure. See these lecture notes, slide 218 in particular, for more details. Update: these ones are way better.
Thus Bills differ in their form and their usage, it doesn’t make sense to confuse them. While today’s announcement is a good sign, we shouldn’t get too excited over their issuance. Portugal has been issuing T-Bills throughout its time as a programme country, and even Greece got some away in May.
For these reasons we shouldn’t read too much into the yield and bid to cover ratios of these bills. It’s still a positive first step, but it’s not Ireland dipping its toes in the water of the markets, more like us taking off our socks near the pool."

darkman2

As of tomorrow morning Spain 9 year yield 6.9% vs Ireland 9 year 6.2%.


The difference between Ireland and Spain/Italy is that Ireland appears to have held it's gains from the summit whereas Spain and Italy have lost all the gains they made on the back of a disappointing ECB press conference last Thursday about the ESM and Spanish banks.

darkman2

Irish bonds steady - 6.2% - Spain way up over 7%. Italian yields may surpass Ireland's. Spain and Italy in quite serious trouble atm.


Irish 1 year yield about to cross under 4%

http://www.bloomberg.com/quote/GIGB1YR:IND/chart

Scofflaw

darkman2 wrote: »

Irish bonds steady - 6.2% - Spain way up over 7%. Italian yields may surpass Ireland's. Spain and Italy in quite serious trouble atm.

Every silver lining has a cloud.

cordially,
Scofflaw

Sponge Bob

Meh . Bunds are nearly all negative so our spread over the Bund is worse than it was when we exited the market nearly 2 years ago.

Scofflaw

Sponge Bob wrote: »

Meh . Bunds are nearly all negative so our spread over the Bund is worse than it was when we exited the market nearly 2 years ago.

Well, don't let it get you down, eh?

cordially,
Scofflaw

darkman2

Irish short term bonds at new crisis lows - undergoing a rally in recent days.


2 year bond is down around 9% today on yesterday @ 4.1%

http://www.bloomberg.com/quote/GIGB2YR:IND/chart


Maybe it's time for the NTMA to issue a two year bond in September. Ireland still basking in the glow of it's apparent summit triumph.

roro2

darkman2 wrote: »

Maybe it's time for the NTMA to issue a two year bond in September. Ireland still basking in the glow of it's apparent summit triumph.

There is already a large bond maturity of over €8bn in 2014, in the first year of non-Troika funding. I would imagine they would prefer to issue further out the curve, 2017 is a "blank" in terms of maturities for example.

antoobrien

roro2 wrote: »

There is already a large bond maturity of over €8bn in 2014, in the first year of non-Troika funding. I would imagine they would prefer to issue further out the curve, 2017 is a "blank" in terms of maturities for example.

Or do a bond swap, like the one that reduced the €12bn that was due in 2014 to
the current €8bn.

Interestingly it's the 1, 2 & 3 year bonds that are significant movers today (0.75% or more of a change).