Ireland restoring reputation on credit
This time around, John Gormley slept soundly in his bed, but not so Uachtarán na hEireann, whose nocturnal dash from the Eternal City to sign the death warrant for IBRC was reminiscent of similar midnight capers along the corridors of Irish power four years previously.
The demise of IBRC means the pendulum has swung fully on the State’s involvement with this rogue lender, from the denial chambers of the blanket government guarantee in late September, 2008 to the funeral pyre of a KPMG liquidator.
The attendant replacement of the Irish sovereign’s promissory note obligations with ultra-long dated issuance to the Central Bank of Ireland has patently not been to everyone’s taste.
However, it has found the full favour of the government bond market, where yields have collapsed by a further 40 basis points across all maturities since the ECB “unanimously took note” of the Government’s decision last Thursday.
Bond investors have rightly responded to both the solvency and liquidity boosts to Irish debt sustainability, the former via NPV markdowns to the real debt burden of IBRC (€6 billion – €8 billion) alongside reduced debt servicing costs (€1 billon a year), and the latter via removal of a weighty €21 billion market borrowing requirement from 2014 onwards.
A buoyant bond market is fertile terrain for a renewed funding exercise by the NTMA. However, the agency is already substantially pre-funded, with approximately €22 billion cash balances sitting on deposit (with negative carry!) in the exchequer accounts.
And this year’s slated €10 billion borrowing requirement is now effectively nullified by promissory note savings (€6.2 billion), the Bank of Ireland CoCo disposal (€1 billion) and that early-January “tap” of an existing five-year bond (€2.5 billion).
With the sale of Irish Life Assurance seemingly imminent (bringing in around €1.3 billion), the NTMA could arguably sit on its hands for the rest of this year.
That it will choose not to do so can be explained by a desire to reinforce the optics of sustained bond market re-engagement, thus cementing Ireland’s smooth exit from the Troika’s funding programme at the end of this year.
A new benchmark 10-year bond offering (of between €2 billion and €3 billion in size) may well materialise before the end of March, after which the NTMA will likely release a calendar of monthly bond market intentions for the remainder of 2013.
In so doing, the NTMA will finally restore normality to this State’s interaction with bond market investors, being the final ingredient of a bailout exit, and perhaps without the necessity of a precautionary ESM credit line (nor ECB OMT activation) to boot.
While the Irish authorities ponder eschewing the gift horse of a precautionary funding backstop for the post-bailout era, the burden-sharing bowl remains firmly stretched out to Europe in other areas.
This week, the Dutch finance minister (and new Eurogroup chairman) confirmed that their early-March meeting will discuss “how best to support Ireland”, the expected outcome being a significant term extension of troika loans (from an average of 12 years to 30+ years) for both Ireland and Portugal in the manner already afforded the struggling Greeks.