10 year Government bond rates

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Frivolous

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These are the current approximate yields on 10 year Government bonds:
Australia 4.6%
USA 4.5%
Italy 4.4%
UK 4.2%
Canada 3.7%
France 3.2%
Ireland 2.9%
Germany 2.6%

I'm surprised Ireland's yields are as low as they currently are compared to some of the above. Are we really one of the least risky potential defaulters on the list or what are the other possible reasons?
 
State savings low interest rates and low bank deposit rates probably suppressing the Irish government bond markets because government can get money from there. Government can take advantage of all that money sitting on deposit.
Also the ntma managed to refinance alot of their debt at very low interest rates
beforehand so haven't yet needed to place a large bond offering yet but alot of debt will be maturing in next few years so that bound to change
Also the corporation tax bonanza means that government hasn't needed to borrow much in fact I think they used it to pay off some debt recently, however that looks to be ending now
 
Frivolous said:
Are we really one of the least risky potential defaulters on the list or what are the other possible reasons?
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The benchmark for Ireland is other euro area countries as we share an exchange rate regime with them.

Default risk in the euro area is usually assessed by reference to the difference from German borrowing costs.
 
Correct, but if the government is borrowing less from institutional investors because of the high domestic savings available, then they can get enough money from institutional investors without having to pay high interest rates
 
Sarenco said:
Eh, no.

Institutional bond investors couldn’t give a fig about State savings or domestic deposit rates.
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Yes and no.

Share of retail depositors in government borrowing is a sustainability metric that institutional investors look at. Governments won’t default on their own citizens’ savings but they might on anonymous foreign bondholders. It’s one factor - albeit not a main one - that impacts the pricing of Irish government bonds.

State savings are about double their share of Irish government borrowing compared to 15 years ago.
 
Also banks and financial institutions are required to own government bonds by regulation since financial crash, if banks have very large deposits like now they are required to buy government bonds so the large deposits effectively suppress bond rates for the government. Half of irish government bonds are owned by irish financial institutions and the central bank. I think the central bank reported a loss last year due to the fall in value of their government bond holdings.
 
Also of interest are the CDS charges i.e. the cost of insuring against default. This is not quite the same thing as the spread over Bund as actual yields reflect supply and demand dynamics as well as of course currency effects. For instance you can see that Japan is actually down the list (i.e. relatively high insurance costs) whilst having the lowest yields. You can see that Ireland is 8th of EU countries whilst I think it is 4th in terms of (lowness of) yields. So this suggests the technical factors mentioned by @joe sod are distorting the picture somewhat. (Don't understand why UK has a better rating than Japan but higher insurance costs).
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I think CDS rates are far more sensitive to liquidity factors rather than default risks relative to sovereign yields, which give a better overall picture.

joe sod said:
I think the central bank reported a loss last year due to the fall in value of their government bond holdings.
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The Central Bank’s balance sheet

This blog focuses on the Central Bank of Ireland's Balance sheet
www.centralbank.ie www.centralbank.ie

Central Bank losses are a feature of their operations and we'll hear alot more about them in the near future!
 
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