Thursday, September 29, 2011

What is going on?

Another day, another drop in Irish bond yields.  The 10-year yield from Bloomberg is now at 7.58%, down from 7.88% yesterday.  Here it is for the past month.

Bond Yields 1M to 29-09-2011

The yields have dropped all week and the graph above excludes today’s fall as shown here.

Bond Yields 1D 29-09-2011


  1. It is amazing! To be fair the other PIIGS are down as well today Portugal down 42bps and Greece down 37bps, however they have seen nothing like the improvement we have over the last few weeks.

    The 5 year rate is down 51bps today and the rate at just 6.72% in just over 90bps higher than the original IMF/EU rate.

    Clearly still a little too high to enter the market but we are getting close. I am starting to wonder whether the NTMA should dip its toes.

    If we raised enough to cover the 2014 bond we would be in a very strong position until 2016 and I think rates could fall even further.

    Started a discussion on it over here

  2. Hi D_E,

    Getting through the Jan 2014 €12 billion bond redemption is key alright. If we can bring the deficit under control our financing needs will be very low for the next two years. If yields keep going as they are "getting back to markets" may not as far away as we thought. There is no way it can beat the EU money so maybe we're even getting there a little too fast!

    I had a look at that discussion - tough crowd to please.

  3. Agreed, there is no way we can beat the EU rate.

    However, if we managed to raise €5bn and restructured the promissory notes we might just be able to declare we are effectively out of the markets until 2016. That would generate quite a bit of kudos and positive market commentary.

    Would cost us a little bit but might be worth the risk

  4. Could it have something to do with our Q2 economic figures? Growth exceeded a lot of people's expectations and has made the official forecasts for Irish economic activity look quite conservative now. Perhaps this positive news is gaining traction in the markets.

    Then again it could be the ECB.

  5. In today's SBP.

    Banks put state aid back into Irish bonds

    Irish banks are believed to have invested sine if the €3 billion recently received from the state in contingent capital back in Irish government bonds.

    The extra demand this created for Irish bonds, together with buying from international investors has led to a big rise in recent months, with the ten-year bond interest rates dropping from 14 per cent in July to be below 8 per cent now.

    This could explain some of the recent improvement in Irish bond yields.

  6. Government bonds count as contingent capital??!

  7. There might be something to this. In the Banking Statistics released on Friday, holdings by the covered banks of debt securities issued by government in Ireland rose from €9.6 billion to €11.3 billion. The September figures might show a further increase. In thin trading this could be enough to cause a large price change.

    If the banks use the €3 billion of "contingent capital" to buy government bonds is it still "contingent capital"? This is a probably a good move for all concerned. The contingent capital was provided with a very high interest rate (possibly up to 10%). The yield on the government bonds was around 8%. Also the State is now paying the coupon interest on these bonds to an institution it owns.

    It's a lot of money flowing around and really going nowhere. The government gives money to the banks who pay the government interest for that money. The banks use this money to buy bonds issued by the government who pay the banks money on these bonds.

    We're still going to lose though.