Irish May Pay Greek Price for T-Bill Return
Irish May Pay Greek Price for T-Bill Market Return
Aidan Crawley/Bloomberg
While Ireland wants to be the first among the three countries to regain economic sovereignty after they all were forced to seek rescue funding, slowing global economies and the escalating debt crisis is thwarting that ambition.
While Ireland wants to be the first among the three countries to regain economic sovereignty after they all were forced to seek rescue funding, slowing global economies and the escalating debt crisis is thwarting that ambition. Photographer: Aidan Crawley/Bloomberg
Irish May Pay Greek Price for T-Bill Market Return
Aidan Crawley/Bloomberg
Commuters cross a bridge over the River Liffey in Dublin, Ireland. Ireland exited the bond markets in September 2010 as investors grew concerned that a banking crisis would push the country into bankruptcy.
Commuters cross a bridge over the River Liffey in Dublin, Ireland. Ireland exited the bond markets in September 2010 as investors grew concerned that a banking crisis would push the country into bankruptcy. Photographer: Aidan Crawley/Bloomberg
Ireland's Finance Minister Michael Noonan
Aidan Crawley/Bloomberg
Michael Noonan, finance minister of Ireland.
Michael Noonan, finance minister of Ireland. Photographer: Aidan Crawley/Bloomberg
Ireland, which spent this year trying to prove to investors its finances weren’t like euro partners closer to the Mediterranean, may have to pay Greek and Portuguese rates next year to return to the credit market.
Finance Minister Michael Noonan laid out a road map on Dec. 14 for Ireland’s return to the bond markets in mid-2013, with the debt agency planning to sell Treasury bills, or securities with a maturity of less than a year, in the second half of 2012. Greece and Portugal both sold three-month debt with yields above 4.6 percent in the past three weeks.
“I can’t see them doing any long-term funding as the euro zone crisis and global growth outlook weigh” on the country, said Brian Devine, an economist at NCB Stockbrokers in Dublin. “They’ll probably have to pay rates of between 5 percent and 6 percent to start issuing T-bills.”
While Ireland wants to be the first among the three countries to regain economic sovereignty after they all were forced to seek rescue funding, slowing global economies and the escalating debt crisis is thwarting that ambition.
Ireland’s October 2020 bonds, regarded as the nation’s market benchmark, yielded 8.48 percent at the end of last week, up from 8.15 percent at the start of November. Ireland pays interest of about 3.8 percent on the 45 billion-euro ($58.8 billion) bailout from its European benefactors and about 4.7 percent for the portion of the 22.5 billion-euro loan package it borrowed so far from the International Monetary Fund.
Market Focus
“We have been of the view for some time that Ireland wouldn’t get back to the markets in 2013 and would have to apply for further funding,” Dermot O’Leary, an economist at Goodbody Stockbrokers in Dublin, said in an interview. “All focus is on the euro crisis.”
Ireland exited the bond markets in September 2010 as investors grew concerned that a banking (ISEF) crisis would push the country into bankruptcy. Two months later, it followed Greece in seeking a rescue package from the IMF and European Union. Portugal was bailed out last year.
Greece sold 1.3 billion euros of 91-day bills on Dec. 20 at an average yield of 4.68 percent. Portugal sold 1 billion euros of bills with a similar maturity at an average yield of 4.873 percent on Dec. 7.
Paying as much as 5 percent “in itself wouldn’t be so bad to re-access the markets,” said Devine. “It only becomes a problem if you’re entire debt stock is priced at those levels.”
Rising Rates
John McHale, chairman of the Irish Fiscal Advisory Council, which counsels the government on tax and spending, expects the country to pay rates above those charged on its bailout loans when it returns to the credit markets.
It is “clear that a market rate is going to be above rates we’re paying on official loans,” McHale said in a Dec. 15 interview with broadcaster RTE. He was speaking in his capacity as an economics professor at NUI Galway. “The need to get back into the markets is coming, but it is not at all certain we will be able to do that.”
Noonan, the Irish finance minister, said in October that Ireland was “breaking the perception” that it was a displaced Mediterranean nation in the Atlantic based on its finances. He said during his Dec. 14 speech at Bloomberg’s London office that the country’s debt agency will step up issuance of Treasury bills and commercial paper in the second half of next year, “subject to market conditions.”
One-Month Paper
The National Treasury Management Agency, based in Dublin, currently has about 500 million euros of commercial paper with average maturities of about one month outstanding. The NTMA may follow this up with some longer-term offerings once market access has been shown, Noonan said.
“They might issue some really short-term debt of up to a year in duration,” said Stephen Kinsella, a lecturer in economics at the University of Limerick. “They may also issue a small amount of debt of three-year duration, but this will be entirely a marketing exercise. The buyers will be lined up and the European Central Bank will most likely come in the next day to prop up the debt in the secondary market.”
If Ireland wants to avoid what effectively amounts to a second bailout, the state must be back in the markets in 2013, as aid runs out at the end of that year. The country is projected to run a deficit of 8.5 billion euros in 2014 when it also faces an 11.8 billion-euro bond redemption during January of that year.
Noonan has pledged to do whatever it takes to narrow the deficit, starting with tax increases and spending cuts amounting to 3.8 billion euros in 2012.
Avoiding Debt
Ireland’s prospects for regaining economic sovereignty are largely out of its hands as European leaders struggle to contain a debt crisis that surfaced in October 2009 when the Greek government uncovered a budget hole. Since the disclosure, Greece, Ireland and Portugal have been forced to seek 256 billion euros of bailout funds.
Governments have about 300 billion euros of debt to refinance in the first quarter, according to analysts at Davy, the Dublin-based securities firm.
“It’s nothing to do with Ireland’s fiscal and debt stability, the fact is investors are avoiding European debt, not just peripheral European debt,” Kinsella said.
To contact the reporters on this story: Joe Brennan in Dublin at jbrennan29@bloomberg.net; Dara Doyle at ddoyle1@bloomberg.net
To contact the editor responsible for this story: Colin Keatinge at ckeatinge@bloomberg.net
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