Tuesday, December 30, 2014

30/12/2014: Who Owns Government Debt?

An interesting chart via DB, mapping sovereign debt holdings across the advanced economies:

As the chart clearly shows, Irish Government debt is disproportionately held in the Central Bank. Other countries with similar proportion of CB-held debt - UK, US and Japan - all deployed direct QE. Ireland, of course, deployed virtually the same QE-like stimulus predominantly to the IBRC.

Another interesting feature is the share of Government debt held by foreign agencies: roughly 20% of the total, or 11th lowest in the sample of 21 countries. That is pretty low, given the amount of PR-talk the Government has been deploying around foreign buyers of Irish bonds.

In contrast, predictably, we rank the third after Greece and Portugal in the share of Government debt held by foreign official sector. This will decline once the IMF 'repayment' is finalised. Domestic banks' holdings of Irish debt are third lowest in the sample, and domestic non-banks holdings are 5th lowest. This is unlikely to change, given the sheer quantum of Government debt outstanding, relative to the overall economy's capacity and demand, and given the low yields on Government debt being generated.

The kicker of all of this is that owing to years of mismanaged bailouts, we are now saddled with the legacy of rescuing private debt holders in the banks. This legacy is simple: instead of private debt we have official debt, held predominantly by official sectors and our own CB, guaranteed by the Irish State. In other words, more of our debt is now super-senior in both rights and default terms.

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