Tuesday, March 24, 2009

'Happy Times' at NTMA: Updated

Remember that unrivaled shot of Borat sun-bathing on the banks of the river? Green unitard thong and brownish sand of post-Apocalypse industrial wasteland of a landscape? This is probably the scenery at NTMA today. The guys, and my heart goes to them for their effort (honestly - they did as good of a job as was possible under the circumstances), have gone away with loading into the markets a €700mln worth of 10-year Irish bonds. They wanted to upload €1bn, but stopped selling 30% short of the target. Why, you might ask? Well, it all comes down to terms. There is no actual information on bid spreads, but the average was 5.80%, lowest price of 89.6, average price 89.527. Yikes.

Some time ago I predicted that we might see 6.5-7% yields on Irish Government paper by the year end. Well, that was before the latest 50bps drop in the ECB rate (March 11), implying that at 5.80% today we are in the territory of 6.00-6.10% already if compared with the situation before March 11th.

What is even more telling is that I was right on March 10 when I priced 10-year bonds in the range of 5.7%-5.9% (here).

Lastly, it is worth looking at the volume of issue - €700mln... sunflower seeds for the public sector - at current rate of spending, Brian^2+Mary are going to get through this amount in less than 4 days and 1 hour 30 minutes. NTMA is better start issuing new paper weekly at that rate of spend! Or maybe they should pick up a phone and dial Leinster House, asking to stop the madness of bleeding the taxpayers and companies to feed the beast of our public sector and start cutting fat. Showing the markets that Ireland's Government is not just a public sector unions' crony and is capable of getting its fiscal policy under control just might bring down the cost of borrowing.

Happy Times?

Update: the media is singing praise for yesterday's issue, but hold on: they say we raised €1bn, in reality, we raised only €700mln in 10-year paper and €300mln in 3-year paper. You don't have to be genius to see that the 3-year stuff is going to mature before the expiration of the 2013 deadline for putting our finances in order. So in effect, we kicked €300mln worth of a problem into the scoring zone... This is equivalent to a drug addict's miraculous 'recovery' reports when the chap simply stashed some powder for a quick hit in a couple of hours time. Some success.

More details from NTMA itself: for the 10-year bond, lowest price 89.46 at yield of 5.818%, weighted average yield 5.808%. Pricey stuff this is and wait until the mini-budget shows the rest of the world that Cowen has no intention of seriously tackling the deficit - where will we be next time we shove pile of debt into pre-2013 maturity?

And you don't have to be a genius to recognize that if the state completes one 'successful' auction like the one yesterday per month, NTMA will have, by the end of 2009:
  • raised maximum of €10bn, while we need €15bn just to stay afloat this year;
  • pushed some €7bn (€3bn in monthly auctions, plus €4bn in February sale) in new debt into 2011;
  • reached €63.5bn national debt level (up from €52.5bn as of the end of February); and
  • forced Ireland Inc even further away from meeting its commitment to the European Commission of getting under 3% budget deficit limit by 2013.
Yesterday's success is starting to look more like a Pyrrhic victory to me.


Anonymous said...

"Showing the markets that Ireland's Government is not just a public sector unions' crony and is capable of getting its fiscal policy under control just might bring down the cost of borrowing."
The problem is more than just the unions, I am afraid. We have 800 or more quangoes with 20 or more politically appointed board members (16,000 total). They each making 20k stipends for showing up once a month. That is €320 million right there. Get rid of the Seanad and the President. Now we are close to half a billion in annual savings.
But that won't happen. Those are all plum political patronage jobs. The rot started at the head and merely went on to infect the unions.

TrueEconomics said...

John, I agree with all you are saying here. The rot started at the head. The only thing I might find questionable is that thesis that the rot infected the unions. I don't know which one got there first, but it is irrelevant. You are absolutely right - there are many more cronies of this state/Government, including in the Seanad, quangoes, NGOs, semi-state companies and host of private sector companies (anyone with more than 40% of their income/revenue derived from the state). Ah, and do not forget the Gaelic Culture/ Language/ Sports/Housing subsidies-junkies. Farmers? At least some of them...