Irish Bonds and the ECB - Bond Sales Watch - the Risk of Sovereign Default

[C. Flower]

http://www.tribune.ie/article/2010/j...vereign-bonds/

There is a good bit of discussion on Irish bond sales (mainly to the ECB) and also on the fact that the ECB is winding down purchases, as the world and European liquidity crisis eases.

Irish sovereign bonds worth about €8bn have been discretely bought by the European Central Bank (ECB) in the last seven weeks to bolster the country's standing in the eurozone, senior sources in the sovereign bond markets have said.

As we are spending far more than our income, our ability to raise loans is critical to paying public sector wages and other day to day expenditure.
Ireland's interest rates on bonds (the cost of borrowing) have soared since the Bank Guarantee.

I've opened this "Bond Watch" thread to keep an eye on sales of Irish bonds - who is buying and what our national/sovereign debt is going to cost us.

They account for up to 10% of outstanding Irish bonds and are larger than many experts had believed. The government bond purchases are in addition to a number of supports, including the central bank's liquidity-pumping for Irish banks, that the ECB currently provides Ireland. The ECB, which has spent €59bn since it launched the programme buying government debt in early May, does not identify the eurozone countries benefiting from the purchases. The bond-buying programme is designed to put a ceiling on the rise in sovereign interest rates and thereby save troubled eurozone countries from being forced to tap the new €750bn emergency fund.

[Cassandra Syndrome]

Irish Bond yields are at 5.5%, extremely high. And the liquidity crisis is getting worse in Europe.

These "stress test" results are a joke, they only cover a banks sovereign debt exposure on bonds that it is trading. THe fact AIB and BoI are going to pass speaks volumes.

Over in the States the Federal Reserve is mulling over whether or not to have another round of Quantitative Easing or offer direct loans to people in the form of Payday lending.

The good news is that we are in the end days of fractional reserve banking. The debt slavery is coming to an end and maybe we might have an opportunity to live life for once.

[BrendanGalway]

The good news is that we are in the end days of fractional reserve banking. The debt slavery is coming to an end and maybe we might have an opportunity to live life for once.

Id like to believe this but I just cant see it. Power bases that go back Centuries would be Destroyed if they lost the ability to create Money. They will move Heaven and Earth to keep their system in place.

[C. Flower]

I'd had it in mind to start a thread on the risk of sovereign default, but perhaps this thread can serve that purpose. David McWilliam's in imo erratic, but he's not afraid to look at the risks we face, as he showed before the property bubble burst.

He says we are "staring down the barrel of a gun at bankruptcy". On an intuitive level, I feel he's right, but I haven't seen any figures. He gives a few in this article.

http://www.independent.ie/opinion/co...y-2265882.html

Analysis is not about positive or negative anything, it's about the truth and telling it like it is. And in truth, the situation is getting worse.
We are not turning any corners. In contrast, we are being subjected to a series of economic Potemkin Villages -- such as guff from silly politicians -- that are designed to obscure.
Before we get bogged down in more spin, let's look at the facts.

The Live Register is at 444,900. The ESRI predicts that 120,000 will leave the country in the next 18 months, on top of the 100,000 who have already gone in the past 18 months.

Government income is only covering 70pc of its expenditure (that is before accounting for the bailout of Anglo.)
Our national debt is heading inexorably towards 100pc of GDP, driven by both our falling GDP and our rising debt.
And now that the State is paying nearly 6pc interest on our debt, this means that the debt-to-GDP ratio will spiral out of control. A simple rule of thumb on debt dynamics is that if a country's debt gets to 100pc of its income, the growth rate has to be greater than the rate of interest on the debt in order for the debt to stabilise.
Our growth rate will probably not hit more than 6pc again in a generation. So without huge increases in taxation and deep cuts, the deficit will spiral out of control. But the more you cut and tax, the less the growth rate and the more the efforts to cut the debt fail. This process -- known in economics as a 'failed fiscal adjustment' -- occurred all over the world in the 1980s.

[Cassandra Syndrome]

Id like to believe this but I just cant see it. Power bases that go back Centuries would be Destroyed if they lost the ability to create Money. They will move Heaven and Earth to keep their system in place.

They could of course start off a third world war or depopulate the planet, when the system runs out of control.

But they are nervous about the level of knowledge people have around the world and how difficult the situation is to control. There a hell of a lot more Socrates these days.

[Cassandra Syndrome]

I'd had it in mind to start a thread on the risk of sovereign default, but perhaps this thread can serve that purpose. David McWilliam's in imo erratic, but he's not afraid to look at the risks we face, as he showed before the property bubble burst.

He says we are "staring down the barrel of a gun at bankruptcy". On an intuitive level, I feel he's right, but I haven't seen any figures. He gives a few in this article.

http://www.independent.ie/opinion/co...y-2265882.html

Figures are really horrorshow Cactus. 500% total debt to income (600 Billion Euro Total Debt to 120 Billion Euro 2010 GNP)

That is simply unsustainable. We would need to expand at 10% per annum just to keep up with the interest alone.

[C. Flower]

According to Brian Lucey via twitter, 70 billion Irish bonds mature before October.

Dan Boyle replied to a question on this -

@brianmlucey Review of guarantee will help somewhat but many banks will have difficulties. There will be re-negotiation and rollover.

Gurdgiev -

@sendboyle Dan, renegotiation and roll-overs refers to senior debt?

B. Lucey

"are you flagging here bank debt restructuring? And what banks will have difficulties? Anglo? AIB?"

The discussion went on -

@GTCost @brianmlucey @cassflower Don't see a situation where senior debt will default. Those who lend to the banks also lend to the country.

@sendboyle Dan - would you, personally, be in favour of a major bank bond restructuring? To alleviate the funding problems...

@brianmlucey I think any decision on extending the guarantee gives an opportunity to do some things differently.

@sendboyle @gtcost But dan - you said there needs to be renegotiation ; what if they wont negotiate and want their cash, and banks havent it

@sendboyle so less extensive guarantee. But are any Irish banks string enough to raise capital w/out the guarantee?

@sendboyle @GTCost @cassflower in bond markets restructuring is a credit event akin to default

[ang]

Those suckers are going down. AIB can't make it.

http://www.examiner.ie/business/aib-...id-126366.html

[C. Flower]

I think your right. How will they sell bonds in that condition? And people eyeing up the subsidiaries may wait for a fire sale.

[ang]

Everything is so intrinsically linked. Why do you think Frank wants NAMA back at committee to answer why loans are taking so long to be taken over.

They (government) have to ensure the loans are all out of the banks before re-structuring/default. Can't have them "furreners" getting hold of my assets but you can take any of the Nations assets that are not nailed down just don't touch mine.

Irish banks also hold approx 30% of Irish government bonds "you can take the country down but you ain't getting NAMA".

[Cassandra Syndrome]

Dan Boyle is so clueless.

This is the end days of the fractional reserve banking tyranny, get in the popcorn we are witnessing history. Future civilisations will be studying these revolutionary times.

[C. Flower]

Irish debt under fire.

http://bit.ly/bgmlVP

Spreads on Irish 10-year bonds reached 297 basis points over German Bunds on Wednesday amid reports the European Central Bank (ECB) is intervening to shore up Irish debt, a reversal of the bank’s plans to withdraw emergency support. The euro fell almost three cents against the dollar from $1.32 to $1.29.

The article is short and highly recommended.

It says that the markets are increasingly sceptical of NAMA and that its exposure to the falling British property market is a problem.

It has interesting comments on Honohan.

The latest jitters stem from the escalating costs of Ireland’s rescue of Anglo Irish Bank (AIB). The European Commission revealed this
week that it had approved government support worth €24.3bn (£20bn) for the bank, significantly higher than estimates by Dublin earlier this spring.
Dr Honohan fumed at the mere mention of AIB, which brought the country to its knees two years ago in much the same way the Icelandic banks crippled their host state.
“They were egregious, in a league of their own,” he said. “If it hadn’t been for them the losses would have been manageable. The net cost to the Irish state of recapitalising the banks is €25bn, or 15pc to 16pc of Irish GDP. It is nearly all the result of AIB.”
Dr Honohan is a poacher-turned-gamekeeper, an arch-critic brought in last year to clean house at the central bank. A professor at Trinity College Dublin, he used to work for both the IMF and World Bank.
He had condemned the government just a few months before his appointment in a paper entitled "What went wrong in Ireland". His long-standing argument is that the genuine Celtic Tiger of the 1990s gave way to a foolish credit bubble over the next decade under “complacent and permissive” bank regulation and the failure of the political class to understand that a small economy on the edges of a currency union must use fiscal policy to prevent overheating.
“There was complacency about joining the single currency in a number of countries. People thought things would take care of themselves, and they have had more than a wake-up call,” he said.
The cardinal error in Ireland was to stand idly by as the ECB’s ultra-low interest rates set off an explosive property boom. Real rates averaged minus 1pc for almost a decade.
Instead, the government made matters worse by relying on “fair weather” taxes – capital gains, property, and corporate taxes – that created windfall revenues and flattered public accounts, until it all ended with a crash.
Dr Honohan knows as well as anybody that Ireland has little headroom for error. The IMF expects public debt to reach 96pc of GDP by 2012, near the tipping point when debt dynamics become unstable.

Are we locked into a tail spin ?

For the past year, Ireland has been touted as the model of fiscal rectitude, proof that countries can pull themselves out of a tailspin if they act fast. It is the laboratory for debt-hangover cures in the eurozone.
The nation has certainly been bold, cutting public wages by 13pc (including pension levies) to restore competitiveness. This is known as an “internal devaluation” in IMF parlance, the only option left for a country that cannot devalue its currency.
Less clear is whether it can work. The budget deficit seems stuck at 14pc of GDP, and unemployment has risen to 13.7pc. The severity of the slump is eating away at the tax base. Critics say the country is chasing its tail.
Under the deflation, nominal GDP has contracted by almost 20pc. Yet the debt stock has risen. Ireland is uncomfortably close to a debt-deflation trap along the classic lines described by Irving Fisher in the 1930s

.

[ang]

Our debt will go beyond 97% GDP prediction by IMF if the EU pushes us as it has Germany to put all bailouts on the balance sheet.

In reality as we all know we are beyond tipping point and markets are finally realising the depth of our very own homegrown crisis........

[C. Flower]

"What's Up in Ireland Today" - Wall Street Journal

http://blogs.wsj.com/marketbeat/2010...-with-ireland/


The ECB has again been buying Ireland's short term debt -

Ireland’s Treasury now has to pay investors a premium of nearly 3 percentage points to get investors to buy its 10-year bonds instead of safer Germany’s. This so-called “risk premium” stood at around 2.4 percentage points a week ago. Premiums for shorter-term borrowings have seen big jumps too.
In the derivatives market, it now costs over $270,000 a year to insure $10 million of Ireland’s government debt against the risk of default, compared with $207,000 in early August, a massive 30% jump. Ireland’s credit-insurance costs are now higher than Portugal’s for the first time since March.
And in the last few days, there have been reports that the European Central Bank is buying shorter-dated Irish debt to calm the market as part of its ongoing –- but recently waning –- support efforts.
“Ireland is proof that to address the problems associated with the most indebted sovereigns and financials we need a constant positive following wind for many quarters, if not years to come,” said Jim Reid, an analyst at Deutsche Bank, in a note today.
It’s very possible that this uptick of fear is overdone. Ireland’s government has finished nearly all of its funding activities for the year, which means it’s less vulnerable if the world’s capital markets suddenly turn against euro-zone countries again. Ireland’s debt managers successfully sold €1 billion of short-term debt today, seeing demand from investors that amounted to three times the debt on offer.
But notably, the Emerald Isle also had to throw investors a bone: The average interest rate on Ireland’s six-month borrowing today was 2.458% compared with 1.367% on a similar bill in July.
Ireland’s experience shows how bumpy the recovery from the economic crisis is likely to be for Europe’s weaker players. The question, of course, is whether this is just a bump or something worse.

The article also mentions that our Government is on holiday while Rome burns.

[PaddyJoe]

Its getting scary now. When Honohan is suddenly giving interviews to the Telegraph in the middle of August you know he's not doing it just for the hell of it. Anybody with half a clue who has been following the bank story for the last year knows that we are broke.
What was the crack about Iceland? Updated its 'one letter and 2 years'