tag:blogger.com,1999:blog-2826531655042170344.post4084383117701538610..comments2024-03-26T11:29:52.986+00:00Comments on Economic Incentives: Interest Rates on our Public DebtSeamushttp://www.blogger.com/profile/15679299530222667673noreply@blogger.comBlogger5125tag:blogger.com,1999:blog-2826531655042170344.post-53350572760747298082015-01-07T10:44:38.570+00:002015-01-07T10:44:38.570+00:00What A blog sir nice article plus good information...What A blog sir nice article plus good information Khan Tareenhttp://www.prizebondpk.netnoreply@blogger.comtag:blogger.com,1999:blog-2826531655042170344.post-30706119187733599712012-10-30T21:03:17.893+00:002012-10-30T21:03:17.893+00:00Hello friend
How are you Today Visit your Web Blo...Hello friend <br />How are you Today Visit your Web Blog Page Got more Information you share Best Information my pray with you and Your Business get more success and Blessings in The name of LORD. <br /><a href="http://www.prizebondlucky.com/" rel="nofollow">saving prize bond</a><br /><a href="http://www.prizebondlucky.com/" rel="nofollow">prize bond sale</a><br /><a href="http://www.prizebondlucky.com/" rel="nofollow">national savingss bonds</a><br /><a href="http://www.prizebondlucky.com/" rel="nofollow">national savings</a>Anonymoushttps://www.blogger.com/profile/06985404907808430230noreply@blogger.comtag:blogger.com,1999:blog-2826531655042170344.post-68664745432771576042011-08-11T20:34:55.627+01:002011-08-11T20:34:55.627+01:00Thanks Seamus,those promissory notes are a maze. N...Thanks Seamus,those promissory notes are a maze. No wonder Joan Burton wanted a powerpoint presenation!Patricknoreply@blogger.comtag:blogger.com,1999:blog-2826531655042170344.post-1456611088704718462011-08-10T14:17:31.937+01:002011-08-10T14:17:31.937+01:00Hi Patrick,
Excellent comment. Your analysis of ...Hi Patrick,<br /><br />Excellent comment. Your analysis of the workings of the Promissory Notes is generally correct.<br /><br />I'm not sure why the yield on Irish government bonds was choosen as the appropriate benchmark rate. It does make the Tranche 4 Notes very expensive.<br /><br />The point you raise in the final paragraph is one that bothered me earlier as well. However the interest rates quoted are the cost of the money used to make the annual repayment, not the interest rate on the actual Promissory.<br /><br />The DoF assume that the cost of the €3.1 billion annual payment will be met with money borrowed at 4.7%. Given the recent changes at the EU summit this seems a fairly reasonable assumption.<br /><br />They don't give the rates they use to calculate the accrued interest on the Promissory Notes but my back of the envelope calculations suggest that they were not far from the actual rates. The €17 billion interest bill is still a good ball park figure.<br /><br />The information note assumes that the Promissory Notes will be paid linearly, i.e. €3.1 billion each year until the capital plus interest has been paid off. This may not be the case for a number of reasons. It could be that Anglo/INBS need the capital quicker or, as I point out above, we could decide to pay them off quicker. The final interest cost is still unknown.<br /><br />There might be the view that paying €600 million of accrued interest in ten years is better than paying €300 million of cash interest now because of cash considerations but we have to take a long term view of the cost of this debt.<br /><br />We can see that in 2013 of the €3.1 billion nearly two-thirds of that will be consumed by the accrued interest; the principle only falls by one-third of the payment. It is a universal law of household finance - pay off your most expensive debt first. I cannot see why we are doing the same here.Seamus Coffeyhttp://economic-incentives.blogspot.com/noreply@blogger.comtag:blogger.com,1999:blog-2826531655042170344.post-23116070411362740752011-08-09T22:31:33.500+01:002011-08-09T22:31:33.500+01:00Seamus, just so I have this right, the government ...Seamus, just so I have this right, the government issued €31billion worth of promissory notes to the three institutions. In addition to this €31 billion the government will pay a coupon on the parts of the notes yet to be paid. These coupons will be accumulated and paid after the payment of the principal amount. The rates charged for each of the tranches depend on the yields at the time they were issued. Since the tranches were issued throughout 2010 with the last on December 31st 2010 the rates on the promissory notes rose in tandem with rises in government yields. <br /><br />After looking at this, the obvious question was why the banks are getting a coupon from the government on the very capital they got from the government who are borrowing these funds to provide this capital. Apparently it has to do with a fair value accounting adjustment and ESA accounting rules. Am I right in saying that were we to attach a 0% rate the €31 billion would not be enough for the capital adequacy purposes as required by the financial regulator? Basically the fair value is derived by referencing the notes to identical transactions in the market or in this case government bond yields. Why can't a marginally lower rate be attached to the promissory notes? Brian Lenihan RIP explained it here but it is not entirely clear to me<br />http://www.kildarestreet.com/debates/?id=2010-11-10.531.0 <br /><br />Second, the DOF technical note on the Promissory note used a weighted average cost of funds raised in 2010 of 4.7% for years after 2011. The rate used for 2011 was 6.5%. Since we now know the rates will be in excess of that or 8.2% even. Brian Lenihan in the PQ you referenced spoke about 20 years and the total interest cost of €17 billion. Is this now a more accurate figure and timeline, and does this imply that the DOF note is out of date given the assumptions they made?Patricknoreply@blogger.com