Government bonds under Irish ownership rise to 23%

IRISH RESIDENT institutions and individuals continue to increase their exposure to Irish bonds, with latest statistics from the Central Bank showing that approximately 23 per cent of all long-term Irish government bonds were held by entities domiciled here as of the end of February.

This compares to 17 per cent in February 2011, and 15 per cent in February 2010.

Traditionally, the proportion of Irish government debt held domestically has been one of the lowest in the euro zone, but the proportion is now rising due to the impact of banks accessing the euro zone’s Long-Term Refinancing Operations (LTRO) for funding.

In total, some €19.8 billion of Irish government bonds were held by Irish residents, compared to €65.6 billion by non-residents.

The majority of the bonds held in Ireland are held by banks, and they account for 85 per cent of the total, or €16.9 billion.

Of this, some €14.7 billion or 87 per cent, is held by the covered institutions, including AIB and Bank of Ireland.

According to Glas Securities, this indicates that the Central Bank has a holding of some €2.2 billion of Irish debt, although in a note it said it was unclear whether this was “inclusive or exclusive of any purchases under the ECB SMP ”.

According to the Central Bank, just €214 million is held by Irish households, flat on the same time last year.

For Dermot O’Leary, chief executive of Goodbody Stockbrokers, the move from Irish banks into Irish debt is to be expected, given the use of the LTRO to raise funds.

Moreover, he could see domestic holdings rise further if the National Treasury Management Agency succeeds with its plans to sell annuity bonds to domestic pension funds.

It hopes to sell up to €2 billion in annuity bonds to pension funds to help them ease deficits over the next 18 months.

In February, just €454 million in government debt was held by Irish insurance companies and pension funds, down by 66 per cent on the same month in 2011.

With regards to foreign holdings, while the European Central Bank does not disclose its exact holding of Irish bonds, it is understood to be of the order of about €15 billion, thus representing about 22.8 per cent of non-resident holdings, or 17.6 per cent of the total.

The remainder is likely to be held by international institutional investors such as pension funds and insurance firms – and one of these may have a larger holding than most.

Last month, it was revealed that Michael Hasenstab of US fund manager Franklin Templeton Investments had built up a stake of at least $2.5 billion (€1.9 billion) in Irish government debt, with some analysts putting his investment closer to $5 billion. If the higher end of the scale was correct, it would mean that his funds would account for about 6 per cent of all non-Irish holdings.