Dog bites Madam… May 25, 2009
Posted by WorldbyStorm in Economics, Economy, Irish Politics.trackback
Madam, – I refer to your Editorial of May 22nd (“Financing our debts”). You ask: “But how much did the latest bond auction success depend on investment by Irish banks which have already received some €7 billion from the Government to help secure their survival? The NTMA should ease investor concerns and set out the details.”
The NTMA auctioned two bonds on May 19th, the 4 per cent Treasury Bond 2014 and the 4.4 per cent Treasury Bond 2019. In the auction, bids were received from all 10 of the primary dealers in Irish Government bonds. Nine of the primary dealers are major international banks based in London, Paris, Frankfurt and Amsterdam, and one an Irish stockbroking firm (Davys). Total bids of €1,440 million were received for the 2014 bond while bids of €1,292 million were received for the 2019 bond.
The NTMA accepted the best bids for €300 million of the 2014 bond and €700 million of the 2019 bond. The detail of the amount of the bonds taken up by each of the primary dealers is confidential because it is commercially sensitive market information. However, the take up was widely spread across the primary dealer group.
The 10 primary dealers are: Barclays Capital, London; BNP Paribas, Paris and London; Calyon, Paris and London; Citigroup, London; Davy, Dublin; Deutsche Bank, Frankfurt; Dresdner Bank, London; HSBC, Paris and London; ING Bank NV, Amsterdam; and Royal Bank of Scotland, London. The practice of selling government bonds through auctions to a primary dealer group of banks is followed by all the European countries who have bond markets of significant size.
There was no arrangement with the Irish banks to take up any of the bonds that were offered for auction nor are we aware whether they would have bought any of them from the primary dealers.
I should add, however, that we would have no problem with Irish banks or indeed any other Irish institutions taking up our bonds, which is the norm in other countries. From the viewpoint of the banks, these bonds are eligible as collateral with the ECB, ie, they can bring them into the ECB and borrow using them as security. – Yours, etc,
MICHAEL J SOMERS,
Chief Executive,
National Treasury Management
Agency,
Grand Canal Street, Dublin 2.
Probably best not to ask a question that can be answered quite so easily…
It is absolutely appropriate for people to take a critical approach to the state’s ability to sell its debt; it is, after all, a fundamental issue in the fiscal debate. In addition, is is also appropriate to subject NTMA policy and practice, to public critique. We are not like the UK (where saying ‘boo’ about Sterling can result in cries of treason or Latvia (where an economist was arrested for bad mouthing the Lat). However, it is curious that so much effort is put into questioning the NTMA’s success – in a very diffuclt climate – without accepting that it is success; one of the few successes of an otherwise appaling deterioration of our fiscal framework. If people want to argue that we shouldn’t be borrowing so much and, therefore, must cut spending or raise taxes or whatever, fine. It’s a legitimate viewpoint. But why frame the issue in terms of the NTMA’s ability or credibility? It baffles me. And when people like Dan O’Brien claim there is a one-in-six chance of defaulting on our debt (an almost inconceivable scenario), are we not just seeing a callous indifference to facts in a most serious debate?
Michael,
I’ve yet to see you addressing the point that most people are concerned about. Its the medium to long run ability to finance the country not right now in the present. If we undertook a massive stimulus plan in would completely undermine any trend towards a sustainable budget. After 2 years we would be looking at laying off all those people taken on by the state to build railway lines etc and there still being no jobs for them. And the deficit would be sky high. B
barratree – apologies for getting back on this so late. These are important questions you ask – and I’ve taken the time to do a post on the issues you raised: http://notesonthefront.typepad.com/politicaleconomy/2009/05/over-at-cedar-lounge-revolution-wbs-is-doing-a-good-job-tracking-the-ongoing-campaign-against-irelands-borrowing-capacity.html
[...] at Cedar Lounge Revolution, WBS is doing a good job tracking the ongoing campaign against Ireland’s borrowing capacity [...]