Bond rates

BilliamD75

Registered User
Messages
64
It's the start of 2019 and the ntma have sold 4 billion 10 year bonds at 1.123.
Remember the rate at the start of the year. Now if you are a bond/hedge or pension fund manager would you lock up 4 billion of 10 year notes at 1.123 rate which is less than inflation when you can deposit it at the fed for a better rate with easy access
We know European banks are depositing excess cash through subsidiaries at the fed as the over night deposit rate is negative at the ecb. Who bought the debt., now I am a bit of the wall and it's just an option but did the ntma repurchase the debt with its excess cash waiting for an external enemy like brexit to blame for raising rates. Answers on the back of an envelope please.
 

BilliamD75

Registered User
Messages
64
The ntma has said that the interest payments on the 200 billion debt will be 5 billion this year and 4.5 billion next year, they spoke about debt chimneys and that 90% of the debt was international among other things. I always ask the question what are they not saying and it's Italy.
Irish bonds held by the ecb are no big deal in the grand scheme of things however Italian government and bank bonds could be worth up to a trillion euros, now that is a big deal, a very big deal and we are joined at the hip. Draghi has been wearing the blue Jersey for Italy as Head of the ecb and its coming to the end with Lagarde as the new chief not that it makes a difference. Its like changing the captain of the titanic with the captain of the Costa cordia as the bonds are already taking on water . Irish debt to gdp/gnp or even gni makes no difference or does the inflation rate. The spread between Italian and German bonds is the real indication of where things are in the bond markets,
The first meeting of the ecbs new chief will determine when the rates rise. Listen out for shrinking of the ecb balance sheet, this is when rates will rise and fast, anything between 5 and 10% to cover the spread between what it receives and has to pay out on the bonds. If it doesn't it will need a bailout as it can go bankrupt. It may just consolidate all the bonds (euro bond) and the conversation is irrelevant, we are polar opposites in our oppions, I wonder which way it goes, a sure it will be grand.
 

NoRegretsCoyote

Frequent Poster
Messages
872
This stuff is tedious.

European banks have their problems but are better capitalised than five years ago.

The ECB blinked in 2012. Since then it has kept up a low-for-long policy. Runaway inflation is nowhere to be seen and most countries are back reducing debt-to-GDP ratios.


There is actually lending power in the ESM to bail out Italy if needs be.
 

Protocol

Frequent Poster
Messages
2,962
We live in strange times.

German 10 yr bond yields have fallen this week, as have other bond yields.

German 10yr yields nearing -0.40%, Irish at under 0.10%.

Just imagine that - savers are willing to lend to the State over 10 years for a 0.10% pa return.
 

WolfeTone

Registered User
Messages
252
European banks have their problems but are better capitalised than five years ago.
Isnt Deutsche Bank effectively bankrupt? Being held together by ECB supports?
The banking system in Europe is still far from a clear bill of health. Balance sheets have been pumped to give effect of adequate capital, but debt is still pervasive.
 

Andrew365

Registered User
Messages
159
No...DB has a strong capital position they reported a 14% CET1 ratio at end of 2018. The issue is their business model cannot meet their targets in this economic environment.
 

WolfeTone

Registered User
Messages
252
No...DB has a strong capital position they reported a 14% CET1 ratio at end of 2018. The issue is their business model cannot meet their targets in this economic environment.
Yes, on paper they have a strong capital position. But isnt that capital supported via ECB interventions? At least indirectly?*

*im no expert in these matters so if im way off kilter here I will add no more.
 

Andrew365

Registered User
Messages
159
Yes, on paper they have a strong capital position. But isnt that capital supported via ECB interventions? At least indirectly?*

*im no expert in these matters so if im way off kilter here I will add no more.
No, the ratio is essentially assets that the bank own themselves and CET1 is essentially cash or highly liquid assets the bank have at hand, in this case for DB the 14% equates to 61.5 bln. The EBA / ECB / FED sets a regulatory minimum CET1, banks then maintain a higher ratio as the regulators perform stresses tests against the banks. These stress tests mimic severe macroeconomic downturns (Severely Adverse) and the banks show they can maintain their capital ratios above reg minimums. This theoretically means that banks would not need financial support from the governments i.e. bail outs.


Post the financial crisis the capital requirements have increased for banks, previously the capital that is now tied up would have been used directly in the business now it is held in trust almost. This is one of the main reasons many banks have restructured and closed business lines.


Edit: *Nothing is ever 100% guaranteed that they would not need financial support from outside
 
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WolfeTone

Registered User
Messages
252
Irish debt to gdp/gnp or even gni makes no difference or does the inflation rate. The spread between Italian and German bonds is the real indication of where things are in the bond markets,
If Irish debt to gdp makes no difference, nor the inflation rate, then why not borrow at 0% to build to the things we need, houses, broadband, hospitals, schools etc?
If the euro blows, it blows, not much we can do about it either way. But if the euro blows up, I would rather have an economic infrastructure that is more capable of rebounding than one that has been laid to waste and left derelict.
 

BilliamD75

Registered User
Messages
64
It's very simple gdp/gnp or the inflation rate will not make a difference on the debt owed its still 200 billion and we will not be able to afford the interest payment's going forward, now that aside when we borrowed the money a few years back why not build the hospital then, it would cost less than today instead of paying wages/pensions ect, we have been through dereliction of property before and had to knock it down. I could build the hospital on the same site and design for half the costs. We all know there are so many hanger ons who produce nothing and cost a fortune when government build infrastructure projects, if it were private sector capital do you think there would be overruns and overbudget the answer is no way, we have an amazing appetite for borrowing money in this country. We can borrow at 0% as the ecb is buying. The private sector premium is 425 basis points on average on the balance of the bonds held in the private sector. The ecb has been funding the government indirectly and that is going to change. My opinion has been no more borrowing and stay within budgets, let the private sector with there capital build infrastructure projects.​
 

WolfeTone

Registered User
Messages
252
now that aside when we borrowed the money a few years back why not build the hospital then, it would cost less than today
Im sure if you look closely enough, most things were cheaper to build in the past than they are to build today.

instead of paying wages/pensions ec
God forbid people should get paid for working or receive a pension in retirement.

I could build the hospital on the same site and design for half the costs.
Did you submit a tender? If not then no disrespect this is all bluster and has no basis in reality.

if it were private sector capital do you think there would be overruns and overbudget the answer is no way
Im sure without thinking too hard there are plenty of examples of large-scale production costs being overrun in the private sector too.

let the private sector with there capital build infrastructure projects.
So a commercial for profit children's hospital? I dont think that is what the government is mandated to do.
Thank God for democracy!
 

BilliamD75

Registered User
Messages
64
I was in that game, no way would we get away with 100/200% overruns.yes public sector wages and pensions should be paid, however from borrowed money? We all know that there is to much gouging going on with public monies and then passing the bill on to the private sector, I will explain another day how to build infrastructure projects in a democratic way for the benefits of society. As a nation we have to live within are means going forward, thats just my opinion.
 

WolfeTone

Registered User
Messages
252
I was in that game, no way would we get away with 100/200% overruns.yes public sector wages and pensions should be paid, however from borrowed money? We all know that there is to much gouging going on with public monies and then passing the bill on to the private sector, I will explain another day how to build infrastructure projects in a democratic way for the benefits of society. As a nation we have to live within are means going forward, thats just my opinion.
A simple Google search will lead anyone to conclude that the bigger the building project, the more likely some overruns will occur.
Regardless of all that, the reality is that these overruns, no matter how much they cost, will find their way into the economy. Yes, it is misallocated capital that could be used to train nurses or equip schools, but instead finds its way to developers or planners or legal professionals or whatever. So we end up with structural deficits in the long-term - too few nurses and too many construction workers and overcrowded classrooms. Nevertheless, none of that is a reason not to borrow.
The time to stop, or reduce borrowing is when inflation starts to heat up. To cool demand in the economy.
There are indicators and warnings of overheating in the economy. Certainly, house price inflation is a strong indicator that capacity is near full in that sector - unless borrowed capital is used to build more houses, extending capacity to meet demand.

Ireland has effectively been through a lost decade. A decade of underdevelopment, decay, income stagnation. It is now out of that phase.
For sure we are still highly indebted and ideally it would be great if that debt could reduce. But in order to do that it requires taking money out of the economy. There is already another thread about specific spending cuts or tax increases. If you go through that you find that there is very little uniformity about what should be cut, or where taxes should be raised. And even if there was agreement, it is dubious to what impact any of it would have on reducing the national debt by any significant amount.
 

BilliamD75

Registered User
Messages
64
Sum overruns are not the issue or the money recycled in the domestic economy. The issue facing us and its a big one is the interest costs going forward, forget inflation its irrelevant in this case.
The ntma has stated recently that interest costs were 33 billion for the last 5years and 60 billion over the last 10 years and that 90% is international, now at the present rate over the next 10 years that's 120 billion going out the back door. The multiplier effect of the money in the domestic economy can be 5 fold depending on the choices made. I can tell you that interest rates are going to rise as the ecb will offload the bonds back to the private sector at some stage as they are costing them a fortune in nominal terms to hold them. This will hurt the domestic economy with tax increases as the government has no way to cover the increasing interest costs.if we had our own currency we could inflate the debt over time
 

WolfeTone

Registered User
Messages
252
if we had our own currency we could inflate the debt over time
You are proposing we leave the eurozone?

To begin with, I agree that the euro is a flawed and badly conceived idea. But to unilaterally leave the eurozone is not a realistic proposition.
What would we replace it with? Punt Nua?
Unilaterally leaving the eurozone would precipitate us leaving the EU. Our bond yields would shoot up as we would not have protection of the ECB. The exchange rate of Punt Nua to the euro would collapse, transferring the €200bn into, perhaps IR£400bn punt nua debt. It would collapse the economy.
Our only option would be to peg our Punt Nua to Sterling.
None of this is economically viable let alone politically viable.
We are tied to the euro. We have cheap money. Best we exploit this to the max (notwithstanding cock-ups and overruns which incidentally occur in every developed economy), build the most efficient, environmentally sustainable economy that we can.
When the poop hits the fan, we will be better placed than most to rebound quickly.
 

BilliamD75

Registered User
Messages
64
I am not purposing to leave the euro, it is doomed anyway in my opinion.there are two ways of looking at this, firstly the ecb is buying 40 % government debt and they are losing billions on the bonds at a eurozone level. If they buy all the bonds (political) it will need a bailout as it is effectively bankrupt. Secondly when it offloads its existing bonds at a eurozone level back to the private sector interest rates are going to rise very quickly causing government budgets to explode and the currency will be the problem . We have to stay in budget whatever the currency (fiscal policy) going forward. This is my opinion.
 

WolfeTone

Registered User
Messages
252
I agree that I think the euro is set for failure. Two things may keep it alive, full political integration into a United States of Europe (we are closer to human colonies on Mars than that), or, a Japanese, US system perpetual debt issuance. In which case interest rates will not rise. They have been promised to rise for over 15yrs. They have sunk instead. The ECB will keep buying government debt.
Its why I recommended Stephanie Keltons talk on YT. The ECB is caught in a debt trap, like the US and Japan, and the USSR before it.
Only that there are no economic sanctions imposed by any serious trading partner against this flagrant manipulation of currency valuation, then the fiat magic-money tree prevails.
The US, Eurozone, Japan, UK are all caught in a debt trap. But they are all too big to fail. Even after UK leaves EU its economy has long tentacles.
Now that I think about it, we should party up! :p
 
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