The underlying bond market "problem" for Ireland is that no-one wants our bonds. This pushes the price down (good ol supply and demand) which pushes up the yield. The less people want our bonds, the lower the price, the higher the yield.
So - to solve the problem, we need to encourage people to buy our bonds.
At the moment the yield is extremely attractive on Irish Bonds. A return of over 7.5% p.a. for 10 years is a bloody great return. Of course the concern is that the Government will default and therefore won't actually give the 7.5% return at all.
So - to the point - how do we "create" a demand for Irish Bonds? Remember the demand has to be fairly significant - maybe 7-10bn now with a future ongoing demand and it can't be the State, the ECB or the IMF (for obvious reasons).
There is actually an answer that would deliver an immediate demand for up to 20bn in Irish bonds - that is to get the Irish pension funds to replace their German bonds with Irish Bonds.
Currently Irish DB pensions are under massive pressure because German bond yields are very low and they are effectively required to use German bonds to back their pensions in payment and future pensions liability. A simple piece of legislation could be passed which allows pension schemes to use Irish bonds to fund their pensions in payments and allows them to use Irish bonds to price their future liabilities would actually serve a number of immediate beneficial purposes.
It would immediately create domestic demand for Irish bonds. The legislation could require pensions in payment from pension schemes to be purchased via an annuity - thus ensuring immediate bond purchase requirements. The fact that the Irish yields are high would mean that the repricing of pension liabilities would be lower, meaning less DB schemes would be insolvent, meaning a greater liklihood of employers keeping the schemes running for staff. Finally - the big one - it would drive down the price of Irish debt which would make our future interest bill lower, reduce some of the pressure on future public finances and make it easier for the NTMA to issue debt next year.
Downside - yes one downside - IF the Irish government did default then those pensions that were linked to the Irish bonds would be impacted - HOWEVER that simply isnt reason enough (imho of course) not to do this. This is somewhat self fulfilling - if we don't get the bond market moving then the risk of default increases but in fact if we take this step, it will get the market moving, thus removing the liklihood of default. In any event the broader positive impact of this move far outweighs any small possible risks to DB scheme pensioners.
How to do it? Pass a simple piece of legislation - could be done as emergency legislation over the weekend if they wanted to.
So - to solve the problem, we need to encourage people to buy our bonds.
At the moment the yield is extremely attractive on Irish Bonds. A return of over 7.5% p.a. for 10 years is a bloody great return. Of course the concern is that the Government will default and therefore won't actually give the 7.5% return at all.
So - to the point - how do we "create" a demand for Irish Bonds? Remember the demand has to be fairly significant - maybe 7-10bn now with a future ongoing demand and it can't be the State, the ECB or the IMF (for obvious reasons).
There is actually an answer that would deliver an immediate demand for up to 20bn in Irish bonds - that is to get the Irish pension funds to replace their German bonds with Irish Bonds.
Currently Irish DB pensions are under massive pressure because German bond yields are very low and they are effectively required to use German bonds to back their pensions in payment and future pensions liability. A simple piece of legislation could be passed which allows pension schemes to use Irish bonds to fund their pensions in payments and allows them to use Irish bonds to price their future liabilities would actually serve a number of immediate beneficial purposes.
It would immediately create domestic demand for Irish bonds. The legislation could require pensions in payment from pension schemes to be purchased via an annuity - thus ensuring immediate bond purchase requirements. The fact that the Irish yields are high would mean that the repricing of pension liabilities would be lower, meaning less DB schemes would be insolvent, meaning a greater liklihood of employers keeping the schemes running for staff. Finally - the big one - it would drive down the price of Irish debt which would make our future interest bill lower, reduce some of the pressure on future public finances and make it easier for the NTMA to issue debt next year.
Downside - yes one downside - IF the Irish government did default then those pensions that were linked to the Irish bonds would be impacted - HOWEVER that simply isnt reason enough (imho of course) not to do this. This is somewhat self fulfilling - if we don't get the bond market moving then the risk of default increases but in fact if we take this step, it will get the market moving, thus removing the liklihood of default. In any event the broader positive impact of this move far outweighs any small possible risks to DB scheme pensioners.
How to do it? Pass a simple piece of legislation - could be done as emergency legislation over the weekend if they wanted to.