Friday, March 4, 2011

04/03/2011: Default probabilities

Some people were asking me recently to give an estimate of the sovereign default probabilities for Ireland based on bonds yields. Here are two tables providing an answer -
  1. The first table covers yesterday close yields on generic IRL bonds by maturity
  2. The second estimates probability of default, using, as risk-free rates German yields on comparable paper

Basically, there is a 90% chance of a default (20% haircut) within 10 years and 15% chance of such an event within the year.

The estimates are very much approximate as we use only yields.
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3 comments:

  1. UnknownMarch 06, 2011

    interesting times we live in. Personally I think the quicker that Ireland restructures the debt burden the sooner they can have a meaningful recovery.However having said that the US job numbers are looking strong and the world economy may come to the rescue.The housing is another matter completely a nightmare that has not even begun its corrective phase. Education costs money and Ireland has had its first boom and bust cycle I hope there are many more to come its an unfortunate but necessary part of capitalism..

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  2. AnonymousMarch 08, 2011

    Constantin,

    I realise your probabilitioes are approximate. But can you outline or link to the method of calculation?

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  3. AnonymousMarch 08, 2011

    Hi can you let us know the IRL bond yields at each year and the coupon payments if applicable

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