Bond yields????

spidermom

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This will be a thread no doubt for the simliarly economic illiterates!
Ireland is not borrowing money on the markets right now...correct.
The yields are massive...correct...

Was googling to see what the international reaction to the great "Cheese" give away was and saw on Bloomberg that the cost of protecting Ireland’s lenders rose to records. Contracts on the senior debt of Allied Irish Banks Plc jumped 51 basis points to 585.5, Irish Life & Permanent Group Holdings Plc. climbed 45 to 753 and Bank of Ireland Plc rose 38 to 683.

Ireland Leads Surge in Sovereign Risk to Record on Budget Woes - Bloomberg


AIB is US essentially ...and so while the cost of AIB goes up..it means we have to pay out more....Yes/No...??

Are we in essence still paying out at inordinate rates though Biffo and Lendihand tell us we are not????

(as I said economic illiterate here!!!)....(apologies in advance!!)
 


MPB

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Anything an Irish Bank has to insure or pay for, is being paid by the ECB. The Irish State/FF has guaranteed all of these payments, despite not having the finances to do so. Hence the ECB involvement.

But yes, all transactions done by Irish Banks are essentially guaranteed by the Irish Taxpayer, so despite not dealing with sovereign bondmarkets we are dealing with Private Bank debt. Through the ECB of course as nobody with half a brain would buy Irish Bank bonds. Sorry Jean Claude.
 

spidermom

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Oh bu**er!!!

Ta for that MPB
 

hmmm

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AIB is US essentially ...and so while the cost of AIB goes up..it means we have to pay out more....Yes/No...??
Not in the short term. CDS are a means of buying insurance against an event, in this case a default by the bank. If CDS rates are going up, it is costing the bank nothing because it's those people (the bondholders) who are buying the CDS's.

However, when CDS rates go up it means that the markets think a default by the bank is more likely, so any future borrowings will probably be more expensive.
 

Baddaddy

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This will be a thread no doubt for the simliarly economic illiterates!
Ireland is not borrowing money on the markets right now...correct.
The yields are massive...correct...
Yes you are correct, and as we are not borrowing anything now the "yields" can go to where ever they wish, as it'll cost the public purse no more that the price at issue.

Are we in essence still paying out at inordinate rates though Biffo and Lendihand tell us we are not????
No.

I also am an economic illiterate, but that's my limited understanding

I'm glad you asked, but my answer maybe incorrect.
 

MPB

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Yes you are correct, and as we are not borrowing anything now the "yields" can go to where ever they wish, as it'll cost the public purse no more that the price at issue.



No.

I also am an economic illiterate, but that's my limited understanding

I'm glad you asked, but my answer maybe incorrect.
So nobody borrowed any money to bailout dud Banks? Nobody has to repay it. It does not exist. It was not guaranteed. It is a mirage.

Thank God.
 

robut

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In the spirit of Dummies Guide :) -

WHATS A BOND?

"A bond, simply defined, is a type of investment which is very similar to an IOU. It is a loan in the form of a security with two basic components, the face value (principle), and the coupons (interest rate). The bond is a contract between the issuer and the bondholder to pay certain amounts of money in the future. The issuer of the bond promises to pay the bondholder principle and interest according to the terms and conditions listing in the bond. Many cities and countries issue bonds to fund new highways and other such projects."

Bond Yields = Interest paid on bonds purchased by IRL PLC.

OR

"The annual rate of return on an investment, expressed as a percentage."

OR [ more comprehensive ]:

"The definition of bond yield is the rate of return on the bond, which takes into account the sum of the interest payment, the redemption value at the bond’s maturity, and the initial purchase price of the bond. Yield on the bond relates to the return on the capital you invest in the bond. You will hear the term yield a lot as it relates to investing in bonds."

INTERESTING BIT:

"Be sure to remember that once a bond is issued, the coupon interest rate is fixed. Therefore, if the market interest rates rise, then the price of the bond will fall so that the bond yield will be consistent with current market rates."

( alot above from Bond Yield Definition )


As per BLOOMBERGs interactive app: [ Bookmark this and refresh during week ]:

GIGB10YR: Ireland 10 Year Summary - Bloomberg

Our interest rate is currently at an unsustainable 7.623

Robut
 

PUFF DADDY

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lucey just tweeted this:

Iceland ten year bond yield is 5.7% ..... Ireland 7.6% #bondwatch
 

robut

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BOND YIELD SPREAD:

yield spread definition from Financial Times Lexicon

"The difference in the yields ( op: INTEREST RATES ) of comparable bonds. One way of gauging the performance of a recently issued bond is to compare its yield to that of a benchmark bond with a similar maturity ( op: GERMANY? ) . If the spread between two bond yields becomes larger, the spread is said to widen; if it becomes smaller, it is said to narrow."

Robut
 
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Squire Allworthy

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The most important thing to remember about bonds is that they enable governments to finance themselves by borrowing rather than by raising tax. Which is fine if it is investment that will give a return but not so good if it is to finance day to day expenditure.
 

sport02

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We need to realise in away the bond rate will be irrelevant in terms of borrowing unless a miracle occurs.
The current rate of 7.65% price has factored in the upcoming budget, the likely hood is we will tap into the european emergency fund at 5% early next year.
 

oggy

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A number of conversations in the real world in last 4 weeks have raised the subject of bonds, the national debt, Budget deficit and many more items. All in all people are very confused and I am one of them. In fact I think Politics.ie would perform a great service to many posters and viewers if a form was opened up with the title Questions and Answers on Economics.
Anyway, on this bonds topic. If the country has borrowed enough to last a few months at one presumes were agreed interest rates what relevance has the current interest rates to us right now ? Yes, come next year we are back in the market for more money the pressures will be there on rates.
Am I reading things right or talking out of my you know what ?
 

robut

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I have said this elsewhere also - the bond yield rate that matters is the one next Feb or so.

However - I think they are a good barometer of what the financial world thinks of IRL PLC for now.

But yes I am also of the opinion the current rate doesnt matter a wit, for now anyway. New year if still the same or worse will be different of course!

Robut
 

robut

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There is one scarey thing right now though & IS RELEVANT:

UK clearing house warns on Irish debt-FT | Reuters

UK clearing house warns on Irish debt

"London clearing house LCH.Clearnet has told members they might be required to deposit more cash to trade in Irish sovereign bonds"

Apparently when bonds are being traded, bought, the buyer has to put a deposit on each bond. The deposit rates ( from what I see ) are set by likes of LCH.Clearnet. If they INCREASE the deposit required TO EVEN BUY Irish Bonds, this surely will send buyers ELSEWHERE to safer bonds that are cheaper where a deposit is concerned.

Robut
 

robut

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And then their are promissory notes.

There has been talk for a while of Anglo and promissory notes:

[ame="http://en.wikipedia.org/wiki/Anglo_Irish_Bank"]Anglo Irish Bank - Wikipedia, the free encyclopedia@@AMEPARAM@@/wiki/File:Anglo_Irish_Bank_logo.svg" class="image"><img alt="Anglo Irish Bank logo.svg" src="http://upload.wikimedia.org/wikipedia/en/thumb/7/7a/Anglo_Irish_Bank_logo.svg/100px-Anglo_Irish_Bank_logo.svg.png"@@AMEPARAM@@en/thumb/7/7a/Anglo_Irish_Bank_logo.svg/100px-Anglo_Irish_Bank_logo.svg.png[/ame]

Just this part - "In order to protect the capital position of the Bank the Minister for Finance provided €4 billion in capital between June and September 2009. A liability management exercise was also undertaken in August 2009 and €1.8 billion of equity was realised on the buyback, at a significant discount, of subordinated debt instruments. In December 2009, the Minister committed to safeguard the Bank's regulatory capital position. As a result the Minister issued of a promissory note for €8.3 billion on 31 March 2010, bringing the government's investment in Anglo Irish bank to €12.3 billion."

What Is A Promissory Note?

In it simplest terms, a promissory note is a written promise to repay a loan or debt under specific terms - usually at a stated time, through a specified series of payments, or upon demand.

( The Promissory Note )

It seems recently that Mr Lenihan and Europe for the purpose of "smoke and Mirrors" maybe, and some accountancy juggling have got a "Two-year 'interest holiday' on bailouts". Keeping billions off balance sheet for next year anyway:

Two-year 'interest holiday' on bailouts - The Irish Times - Fri, Nov 05, 2010

"THE GOVERNMENT has been cleared by Eurostat in Brussels to take a two-year “interest holiday” in relation to the repayment of almost €31 billion in promissory notes being provided to Anglo Irish Bank, Irish Nationwide and the EBS building society."

Think of your own mortgage. If you had an interest holiday you still pay it back - eventually. So the question being asked by others is has this all been factored into the mix of our dept? For next year NO, but after that it will be back.

The markets are wise to all of this - hence the current turmoil!

Robut
 

Baddaddy

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So nobody borrowed any money to bailout dud Banks? Nobody has to repay it. It does not exist. It was not guaranteed. It is a mirage.

Thank God.
I never said that, we are not paying interest at the rates being quoted by the market, we are paying the rate at which they were issued.

Is that so difficult to understand?

And its the rate that will be prevelent when we go to market next year is the important one.

And you are attempting to be a smart-arse, keep practising:rolleyes:
 

hmmm

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There is one scarey thing right now though & IS RELEVANT:

UK clearing house warns on Irish debt
Despite your use of BIG SCARY WORDS, this really isn't a big deal for those selling Irish bonds.
 

Morte

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A number of conversations in the real world in last 4 weeks have raised the subject of bonds, the national debt, Budget deficit and many more items. All in all people are very confused and I am one of them. In fact I think Politics.ie would perform a great service to many posters and viewers if a form was opened up with the title Questions and Answers on Economics.
Anyway, on this bonds topic. If the country has borrowed enough to last a few months at one presumes were agreed interest rates what relevance has the current interest rates to us right now ? Yes, come next year we are back in the market for more money the pressures will be there on rates.
Am I reading things right or talking out of my you know what ?
The current rates don't affect us right now. But when we go to issue new bonds then we'll have to pay the current rate, otherwise people would just buy old bonds on the market rather than the new bonds. So the current market rate shows where our interest rates are headed, not what they are right now.
 

Nemi_

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AIB is US essentially ...and so while the cost of AIB goes up..it means we have to pay out more....Yes/No...??
We're all feeling our way on these ideas, but I find some of the material on this thread does not quite match what I thought the position was - anyone please feel free to correct if what I say is wrong.

As I understand it, there are two linked elements. NTMA raises money for the Irish State by issuing bonds to be repaid by a certain date - say, ten years hence. So, basically, some bank (or several banks) somewhere gives NTMA a billion, on the understanding that NTMA will pay them an agreed interest rate on that billion each year, plus repay the billion itself at the end of the period. The money raised by NTMA is to fund the massive gap between what Government collects in tax, and what it spends on education, social welfare, Metro North if it happens, etc.

Now, if I'm a banker who bought a bond off NTMA last year, I might be getting increasingly worried about whether I'll get my billion back. So I lay off the risk of NTMA telling me in nine years time 'sorry about that, Nemi', much the same way as a bookie lays off a big bet. I find some other banker, who sells me insurance. The price of that insurance might be high - but that has no impact on what NTMA pays me. So if I bought last years bond at a rate of 4% (I've no idea what it would have been), that's all NTMA will pay me. The fact I might only find insurance equivalent to a return of 7% is my loss, not NTMAs.

However, the rate at which I can buy insurance is an indication of what it will cost NTMA to borrow money in future. Because, clearly, if I can only get insurance at a rate of 7%, I'm not going to accept a return of less than 7% from NTMA.

The second element is the banks. If AIB borrows a billion from me, with the Irish Government guaranteeing them, I have two bites of the cherry. Chances are that, even if many of their non-NAMA loans go bad, AIB will be able to repay a fair chunk of my billion. If not, I can then turn up on the door of Brian Lenihan to look for the balance. That's why you'll see a range of values for the Irish banks - the risk depends both on my perception of the ability of the bank to repay, coupled with the ability of the Irish State to repay. For NTMA debt, all I'm interested in the ability of the Irish State to repay.

So, what it all boils down to is that we don't directly have to pay anything extra if the cost of insuring AIB bonds goes up. Its just an indication that future Government debt will be more expensive. The two things driving the increasing expense of Government debt are the size of our deficit - in other words, the fact that we're not raising anything like enough in tax to cover the present cost of State services (and probably don't have the capacity to raise enough tax to do so) - and the fact that the taxpayer is liable, through the bank guarantee, for the bad debts of Anglo and the other banks.

I know that's quite lengthy, but I suppose I'm trying to knock any mystery out of this sort of thing.
 


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