Madam, – Your columnist Cantillon is correct when he says that our political leaders “should guard against the twin dangers of being in denial and misleading the public” (Finance, May 31st).
Since January, the yield to redemption on two- to five-year Irish government bonds has escalated from around 8 per cent per annum to almost 13 per cent. If held to maturity this yield is both DIRT and capital gains tax free. There is little attraction in placing funds with Irish banks offering 4 per cent per annum subject to DIRT unless you believe that a claim against a bank carrying a Government guarantee is less risky than a claim directly against the State.
So what are the markets telling us? The managers of fixed income securities around the world working for banks, pension funds, mutual funds, insurance companies and private foundations reckon that the current three-year risk for Irish government debt requires a reward of over three times that being offered by Irish banks for deposits. Clearly the bond investors believe that there is a serious risk of default by the Irish Government.
If, however, the National Treasury Management Agency plan to issue new bonds next year then current indications are that they will have to offer at least 13 per cent per annum to get the bonds placed. A high price to pay to keep the State in funds.
The emphasis must be on reducing the annual deficit by Government. I find it amazing that one-third of my old age pension is being borrowed. Such a policy is clearly unsustainable. – Yours, etc,