Why does all this ‘Bond Market Malarkey’ Matter?

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As I have recently begun writing about the Bond Markets and posting about it on Facebook, an interesting discussion has taken place on why are we bothering reporting on it if we currently aren’t borrowing from the bond market and what exactly are bonds. So myself and another friend tried to explain why it is important.

Comment 1:

Good job we are not actually borrowing at the moment!! (Which is why I am surprised that we are still fixated on the number, who cares what rates bondholders are selling to each other, we need to concentrate on getting the rate down for Jan when we need to borrow.)

My Response:

The reason its going up though is that investors think we will default before we can borrow again. We were supposed to borrow €1.5bn in October and €1.5bn in November, therefore we have to borrow more then initially hoped next year. Also if… investors are dumping the bonds at the moment, why will they want to buy new ones next year? That is why we care what the number is. Also LCH putting up the margin by 15% to trade in Irish Bonds means it will be very expensive to trade in Irish Bonds, making it harder still to sell new ones.

Comment 2:

What are the bonds exactly Spillane?

My Response:

Its basically what funds the country.The Government raises money by selling Bonds on the market.

Comment 3:

so what is this 8% malarkey all about? its more expensive to buy Irish bonds is it?


Stephen has got it more or less spot on there. We currently have a huge gap between spending and income for the state. We fill this gap through borrowing. We borrow by issuing bonds. Current bond prices are on the secondary market. Bonds of… over 8% are generally regarding as Junk bonds. This essentially means they are high risk and the chance of default is huge. The prices are rising because no one wants Irish sovereign bonds. The Government will return to the bond market early next year, unless the rates go down we will be unable to afford to borrow and will crash. We would then need the EU & IMF to bail us out.

ScandalCentral also linked to this video of Bloomberg on Monday which shows how serious this is for Ireland.

I hope this may help explain to you why all this stuff is important!

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How soon before we go to the EU-IMF?

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Yesterday I found this post on the Telegraph website (via Stephen Kinsella). Its quite a worrying read for those of us who are worried about Ireland’s future.

Ireland is funded until April but after that we will have to return to the bond market. Our auctions are currently suspended. As Colm McCarthy said in the Irish Independent

“The €1.5bn not borrowed in October plus the €1.5bn not borrowed in November represent borrowing postponed, not borrowing avoided,”

If we can’t raise this money, we may have to tap our pensions reserve of €12bn, but that is not a good idea as we do need that money.

The spreads over German Bunds are mimicking the action seen in Greece in the final hours before the dam broke.

This is a worrying sign. Are we about to the way of Greece?

Even if the government manage to win the Donegal South West election and pass the budget, we might still not be better off.

Its looking like sooner or later we will have to go cap in hand to the EU-IMF bailout fund.

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