Political uncertainty the main reason for high bond yields?

anewbeginning

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I have a feeling it is.

Many foreign analysts interviewed on channels such as Bloomberg, or even RTE, say they don't believe the Irish government have the numbers to pass the budget.

Even if the upcoming budget is passed, this government is hanging on by it's fingertips.

This leads to political instability and uncertainty for the future.

Political instability and uncertainty usually has catastrophic effects on bond yields.

The current government clinging on, rather than going to the electorate to seek a strong mandate for a future government, instead of sending a message of stability to the markets, is sending the opposite message.

As long as the current government remain in power with a tiny majority, our bond yields will continue to rise. In fact they will rise by the day.

Surely Cowen has copped on to this now, or again like everything else, is his head buried firmly in the sand.

We need political stability and we need a General Election to ensure that stability. Only that will bring down the cost of borrowing.
 
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David Davin Power on Monday night on RTE News at Nine said pretty much the same thing, that the markets didn't have confidence and wanted an election.
 

cozzy121

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I doubt it. The only reason for the high yields is that the game is up.
A new government won't change that fact.
This is a failed nation that, thanks to the patriots of ff, has failed their citizens once again.
No Hedge-funds in their right mind will lend to Ireland.
 

HarshBuzz

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It's a factor, but only a minor one (bond analysts don't focus much on political factors in EU countries). It would make feck all difference if FF were replaced by FG tomorrow morning

the main factors are:

broke State
broke banks
broke populace

add 'em together and you get a picture that leads you to the ineluctable conclusion that Ireland has an unnacceptably high risk of default
 

Gardener

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I have a feeling it is.

Many foreign analysts interviewed on channels such as Bloomberg, or even RTE, say they don't believe the Irish government have the numbers to pass the budget.

Even if the upcoming budget is passed, this government is hanging on by it's fingertips.

This leads to political instability and uncertainty for the future.

Political instability and uncertainty usually has catastrophic effects on bond yields.

The current government clinging on, rather than going to the electorate to seek a strong mandate for a future government, instead of sending a message of stability to the markets, is sending the opposite message.

As long as the current government remain in power with a tiny majority, our bond yields will continue to rise. In fact they will rise by the day.

Surely Cowen has copped on to this now, or again like everything else, is his head buried firmly in the sand.

We need political stability and we need a General Election to ensure that stability. Only that will bring down the cost of borrowing.
Yes..you're probably right. Afterall it is unlikely they will make it to the summer I reckon. I also get regular email updates from a foreign exchange broker in the UK who had this take on it this morning. Interesting stuff

The spread between Irish and German 10-year bonds continues to widen as the markets fret over the financial state of Ireland and its banks. In an interesting article, BarCap notes that one in five of its clients believe that the some sort of default or debt restructuring will occur within the euro zone and that current debt levels cannot be sustained in the longer term. Of course, many feel that an outright default is unthinkable and, indeed, the ECB have made it crystal clear that they will do everything possible in order to avoid such a default, however, these sovereign debt problems have been rumbling along for some time now and actions from the ECB have done little to stem the problem.
 

paulp

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gas considering Lenihans comments last week on the subject

I find it very difficult to see how we can have a general election in the midst of the type of international financial difficulties we are facing at the moment and how it will assist us in any way," he said.
 

Flynnster

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I don't agree because the three main political parties in the state have all agreed and publically stated that they are committed to reducing the defecit by 2014 and all have committed to doing so along the same lines with the odd caveat here and there.

An election in my view will do very little to change the bond markets view that its only a matter of time before the bailout is required. We are no longer in IF territory as far as the market is concerned more a question of when.
 

anewbeginning

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I think it's important we all start listening in detail to what influential economists, etc in Europe are saying, rather than being spoon fed propaganda from the Irish government.

Bond markets to pass judgment today on four-year budget plan - The Irish Times - Fri, Nov 05, 2010

Ahead of publication of the outlook, Goldman Sachs group chief European economist Erik Nielsen said the next four weeks were “likely to be messy for Ireland”.

There is a “real risk” the Government won’t be able to get the budget on December 7th passed, Mr Nielsen said in a note. Still, Ireland “is fully funded through mid-2011, so we are not talking about an imminent liquidity crisis”.

In a note to clients, Davy’s said the risk that Irish bond spreads won’t fall substantially by the new year “has grown considerably”.

“Political uncertainty increased considerably this week with the resignation of Jim McDaid” and the announcement of an election to fill a vacant seat in parliament by the end of the month, it said.

Ireland’s debt woes were not helped by a decision by the Russian finance ministry to remove Ireland and Spain from a list of countries in which Russia’s $130.9 billion sovereign wealth funds is permitted to invest.
 

Simon.D

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It's a factor, but only a minor one (bond analysts don't focus much on political factors in EU countries). It would make feck all difference if FF were replaced by FG tomorrow morning
I do think our political stability is a major problem for the markets... This government has been paralysed from acting from word go of this crisis and every action to date was putting the real pain on the long finger, purely as a means of self preservation... I don't think we'd be in this position if we had a government balsey enough to stand down their backbenchers, and do what was urgently needed to reign in the finances..

We need an election fast.. There'd be absolutely no doubt about the coming budget if we had a strongly backed government.. There'd be little doubt about us having a series of tough budgets if we had such a government.. But at the moment doubt is all we have... I don't think this budget will be carried, I personally don't want it to be as Fianna Fáil have most likely made another mess of it and I'm sure the markets share my sentiments.. We need an election pronto...
 

Maximus Cynicus

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I think it's a lot simpler than that. My take on it is as follows:

Many foreign analysts interviewed on channels such as Bloomberg, or even RTE, say they don't believe the Irish government
Figures put out by this government have been a joke from day one. This might work in some parish pump backwater but we're dealing with different animals here
 

DaveM

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The Dail arithmetic has been dicey for quite a while so it's not surprising that this has become more of an issue since SF's victory in the courts and McDaid resigning. The likes of Healy-Rae looking for their 30 pieces of silver to get the budget through wasn't surprising but now FF have to contend with the likes of Noel O'Flynn threatening to oppose the budget if pensions are touched. If a gom like O'Flynn can exert undue influence over the budget then the fact that political instability is becoming an issue for the bond markets isn't really surprising, is it?

No chance of FF ever admitting to such an idea though and the Greens seem to be clinging to the hope that something might crop up which would allow them to avoid annihilation.

Of course we need a GE. No chance of the government voluntarily allowing one until the spring though.
 

dubboy

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I think generally an election would be considered bad as generally incoming governments (greece the obvious example, but also in the uk to an extent) have discovered that the previous governments were cooking the books somewhat and estimates for growth would be lowered and the deficit increased... also it's obviously tempting for incoming governments to make things sound worse than they are when they come in, to put the blame on their predecessors.
 

ballot stuffer

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A slim majority means weak government. Weak governments don't generally pass severe austerity budgets.
That and the government's economic credibility gap has ruined any hope of market confidence.
 

PUFF DADDY

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A slim majority means weak government. Weak governments don't generally pass severe austerity budgets.
That and the government's economic credibility gap has ruined any hope of market confidence.
+1, we need a GE now with a clear majority and just get on with it !
 

Rocky

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It's a factor, but only a minor one (bond analysts don't focus much on political factors in EU countries). It would make feck all difference if FF were replaced by FG tomorrow morning
It would lead to stability. Fine Gael and Labour would have a large majority and could easily be there for the next five years. Of course all of our problems wouldn't disappear, but at least we wouldn't have a weak government, with a tiny minority which has no credibility and which is clearly on it's last legs. I know I'd have more hope for Ireland if there was simply a change of personal, regardless of everything else and I know I'm not alone in that.

At the latest we should have had an autumn election.
 

Gardener

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It would lead to stability. Fine Gael and Labour would have a large majority and could easily be there for the next five years. Of course all of our problems wouldn't disappear, but at least we wouldn't have a weak government, with a tiny minority which has no credibility and which is clearly on it's last legs. I know I'd have more hope for Ireland if there was simply a change of personal, regardless of everything else and I know I'm not alone in that.

At the latest we should have had an autumn election.
+1. Without doubt we need a GE and a majority government to be there from the begining of the 4 year plan. In fact each party should set out their 4 year plan and then have the GE based around that and then we can decide which direction we want to take. For me that would be ideal, democratic way but it aint going to happen because FF want to hold onto power at all costs. Instead we're stuck with a gov that have a 3 seat majority and we have 4 outstanding bye-elctions!!
 

ibis

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+1, we need a GE now with a clear majority and just get on with it !
That's kind of the problem, though - the assumption is that a GE will yield a stable (and non-FF) coalition with a clear majority. Given the sparring between FG and Lab and the question of how well the Opposition are actually doing in terms of real seat gains as opposed to sentiment polls, that's not a given by any means.
 
B

boo-boo

The reason our bond yields are so high is because of two things....the bond markets dont have confidence in our ability to get ourselves out of this financial crisis.....and secondly, they dont believe any of the figures or projections that this Govt. vis a vis the Department of finance produce....

Four year plans....what a laugh....they cant even plan for one year without completely stuffing things up!

I expect the interest rates will be heading towards double digit figures.....

And a new Govt. ain't going to change these simple facts.....

Who will be charged with producing and analysing the figures for a new Govt....the same owl people in Govt. Departments who got it so wrong to date....

And remember not so long ago both FG and Lab winged and winged because they wanted increased budget expenditure at times of the false boom....

And more importantly, FG did vote for the blanket bank gaurantee...and they done this without knowing the full facts and the financial implications of what they were voting for....

That demonstrates to me, that FG lack any credibility on their ability to manage our economy!!! And I aint a FF'er either!
 
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Aindriu

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I don't agree because the three main political parties in the state have all agreed and publically stated that they are committed to reducing the defecit by 2014 and all have committed to doing so along the same lines with the odd caveat here and there.

An election in my view will do very little to change the bond markets view that its only a matter of time before the bailout is required. We are no longer in IF territory as far as the market is concerned more a question of when.
If you are right then we are royally screwed because no lender in their right minds will lend to us at the moment.

It is only with a new governent with fresh ideas that we will be able to borrow again. If FG etc are going to be the same sheep in different clothes then we are fecked.
 

Nemi_

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It would lead to stability. Fine Gael and Labour would have a large majority and could easily be there for the next five years. Of course all of our problems wouldn't disappear, but at least we wouldn't have a weak government, with a tiny minority which has no credibility and which is clearly on it's last legs. I know I'd have more hope for Ireland if there was simply a change of personal, regardless of everything else and I know I'm not alone in that.
I think we need an election, but I don't see how that substantially changes the financial situation.

If the State can only raise around €30 billion in tax, then it only makes sense to borrow if you feel it can raise more than €30 billion at some future date to pay it back. I think that's where the credibility gap lies. Because keeping public spending at present levels isn't doing anything to direct improve our ability to repay.

If the budget doesn't go through, its really just saying that the political process can't grapple with that reality. But an incoming Government will face the same problem. I can't see the election, in and off itself, improving the position, as the problem is a real one and not one of preception.

And, just to be totally clear, I'm absolutely not suggesting some voodoo stimulous package will change anything. If Exchequer spending generated its own income, there would be no deficit. Try explaining to the man from the IMF that the Limerick - Galway rail service is a priceless investment that will spearhand growth and development throughout the whole of the MidWest region and return more than the weight of a DMU two carriage set in gold for the Exchequer. Because that's the kind of thing you are borrowing money to fund.

The best way of getting the cost of our borrowing down is to reduce our need to borrow, by reducing expenditure. That requires all State payments to everyone to be cut - salaries, dole, whatever. (And, as an aside, that clearly means the minimum wage has to go as a direct consequence.)

I feel the key reason people don't want to lend us billions is because they don't think we can pay it back. I've a feeling they are right.
 


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