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IRELAND HAS MADE another visit to the international money markets, with the National Treasury Management Agency (NTMA) raising €500m in short term cash this morning.
The treasury bills, or T-bills, will be repaid after three months. The indicative premium on the payback is around 0.20 per cent, although this is calculated as if the money were to be repaid after a year. The actual interest cost will be less than this.
The short term money raised this morning is the latest in a series of fundraising exercises that have been completed since Ireland first returned to the short term money markets in July 2012. The yield on the short term bonds has fallen to its current level from 1.80 per cent at the first auction.
High demand
Demand for the bonds amounted to €1.902bn in bids lodged, some 3.8 times the amount on offer.
This mornings fundraising is separate from a target of around €8bn that the NTMA has set to raise from the markets in long term money this year. Those funds will only be repaid after ten years.
The auctions are usually held on the third Thursday of the month for around €500m. Targets for the auctions can rise as high as €1bn, but it is thought that the NTMA will restrict their ambitions to sales of €500m for the forseeable future.
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Is there a case for us to use lower current rates to refinance older debt.
Lock in lower interest rates for years to come. Give us some relief from interest.
Simply put, yes there most certainly is. Only issue really is just how much we can raise at these rates. Investors may be willing to fund 8-10bn at under 3%, but those rates would rise if we were looking for 80bn. Still, should be a drawn out process over a few years, but borrowing money at 3% to cover debt raised at 6% will always make sense.
Existing debt is like our mortgage.
This debt today is like an overdraft or using a credit card. Only short- term cash lending.
You cannot change the terms of the long term debt without the permission of the bonds owners.
The answer is no.
David, 10 year rates are below 3%, I don’t think anyone is suggesting we restructure our national debt using a series of T-Bill auctions! You don’t need anyone’s permission to change the terms of debt – funds raised at a lower rate can be used to buy back previously issued, higher yield bonds as they are exchange traded, effectively restructuring debts. This sort of thing is fairly common practice for companies & sovereigns alike, and while there are potential pit falls, the spread that Ireland could benefit from would appear to make it a worthwhile venture.
Silent Majority is our debt being traded or is it held by the the likes of Germany and the IMF? Is there a chance we could raise the money but they not want to sell us back the debt or bonds or however it is held if it’s the Central Banks of whatever country involved rather than free market trading? After all if we keep going as we seem to be and the economy improves to a point where we are paying the debt they stand to make a decent profit off the debt we accrued.
Look, you cannot change long-term debt. If existing bonds are up then you can go to the market and get new bonds at new rates but that is all you can do..
What if you replaced the long-term bonds with cheaper 3 year bonds but in 3 years you get stuck with having to sell your bonds at 8%. It is gambling and cannot be done.
Barry, doesn’t really matter who holds the debt, they just want repayment and profit really. And they stand to make a tidy profit from a but back anyway – debt with a 6% yield likely won’t be bought back for 100% of the principal, a premium for the yield will have to be paid. However, as risk of default is negated, it will work out cheaper than paying the coupons until maturity. If the premium above principal is less than the spread between new and old debt, it is probably a good trade (although there can be other factors).
David, this isn’t about changing long term debt, it’s about buying it back. Please explain why buying back exchange traded debt “cannot be done”? And no one but you is proposing this be done with short or medium issuances, but 10 year rates are very low at the moment so restructuring should be considered.
You would have to pay a premium to clear the existing bonds and then pay interest on new ones.
Between the premium and the new yield to pay – you lose. Unless you have a Nobel Prize in Economics then I do not know how you could make it worthwhile or cheaper than what we have now.
Do you think bond holders would take a loss? No.
First paragraph of my last post covered that specifically. If premium above principal is less than the spread between new and old debt it is a good trade. Premium above principal will not equal yield rate due to negated risk of bankruptcy & time value of money. Basic enough maths really, and no I don’t have a Nobel in economics (yet!!)
Silent Majority, buying back high yielding bonds will involve paying a premium over it’s face value to reflect the yield to redemption. There is no benefit to be gained in buying back such paper financed by a new issue. You may reduce the coupon but you will increase the debt.
Any body who robs Peter to pay Paul will always have Paul’s support !!!
20bps on short term debt is pretty impressive, especially considering it’s fallen from 180 in under 2 years. To put it in context, 0.2% pa equates to 2.02% for 10 years, while 1.8% equates to 19.5%!
You cannot compare the 3month t-bills rate with 10 year rates for bonds, they are two different things. Totally.
Low interest rates are great ..but only if you have a tracker.
Any of us on variable are being totally screwed at the moment to recover the shortfall..and will probably be the first ones hit when rates rise..give us a break.
What the hell has that got to do with anything?
The biggest beneficiaries of these low interest rates are banks who used them for casino banking etc .
Low interest rates offer no incentive to savers and in general there are more savers than mortgage holders .
these low interest rates are also fuelling bubbles in UK and USA .
A return to normal banking – will that ever happen – with banks and others offering reasonable rates of interest – this will attract capital – which they could lend to SMEs – .
One of the points of low interest rates is to disincentivise saving. Saving is good in a boom and bad in recession, but we are more likely to save in a recession than a boom, so interest rates are one way of getting people to make the best use of money. In the boom years we had the SSIA schemes to encourage people to spend less/save more, now we have low interest rates to get people to save less/spend more.
You don’t really need a lot of people saving for credit to be available to businesses, in fact the opposite is often more true. Credit is raised from a variety of sources, individual depositors being one of the least utilised. When creditors are confident of repayment and stability, credit will return. Rates of domestic savings will not be particularly relevant to this, unless domestic saving levels are too high.
Raising interest rates in a recession is suicide – expect ECB base rate to remain around, but hopefully above, the 0 mark for at least the next two years.
have your say