Wednesday 20 September 2017

Bond sellers need to ‘walk the walk,’ says Corrigan

Dara Doyle

Ireland’s debt management chief has a message for countries struggling to convince investors they can pay their bills: "No waffle."

“You have to talk the talk and walk the walk,” John Corrigan, chief executive officer of the National Treasury Management Agency, said in an interview. “You need to send a clear message to the market about how you are going to correct the problem and then deliver.”

Government spending cuts to tackle a ballooning budget deficit have helped lower the premium investors charge to hold Irish debt in the last year. The yield difference, or spread, between 10-year Irish bonds and the German benchmark was at 129 basis points yesterday compared with 284 basis points in March 2009. It may fall to below 100 this year, Corrigan said.

In contrast, investors demand 303 basis points more to hold 10-year Greek debt instead of bunds, Europe’s benchmark securities. Greece’s budget gap widened to 12.7pc for gross domestic product last year, the highest among the 16 euro-area nations. Ireland’s deficit was 11.7pc of GDP.

The Greek spread has soared since mid-November and reached 396 basis points in January, the widest since before the euro’s debut in 1999, on concern that Greece would struggle to meet debt payments. Portuguese and Spanish spreads have also surged in the past four months.

“It’s very simple, but much easier said than done,” said Corrigan, who became CEO of the agency in December. “You need very strong political resolve as well.”

‘Movable feast’

Irish spreads may narrow as the eventual cost of recapitalising the country’s stricken financial system becomes clearer over the next month, Corrigan said.

The National Asset Management Agency, the body set up to clean up the financial industry that falls under Corrigan’s NTMA, will soon start buying loans from banks led by Bank of Ireland Plc and Allied Irish Banks Plc. About €17bn will transfer by the end of March, Corrigan said.

“Then the capital position of the banks will be fairly self-evident and the question of whatever further capitalisation is required would be addressed,” Corrigan said. The European Commission may rule by early April on viability plans submitted by the banks, he said, though the timing is a “movable feast.”

New bond

Corrigan also said the debt agency is considering selling an index-linked bond for the first time in response to interest from investors. It may also sell a 30-year bond.

“It would certainly tap into a potential new source of funds,” Corrigan said of the index-linked security. “The issue is whether you would get up to the critical mass and be able to produce something that had a reasonable degree of liquidity.”

Ireland holds its third auction of debt this year today, when it plans to raise as much as €1.5bn. Coupled with €5bn of bonds sold through a group of banks in January, that will mean it has raised about half of the €20bn it plans to raise this year.

The final figure may be about €21bn, said Corrigan, who said he is very “relaxed” about the total.

“The focus is moving off” Portugal, Ireland, Greece and Spain, he said. “The capital markets will have to find something else to obsess around. Hopefully, by virtue of delivering on our fiscal promises, they’ll leave us alone.”

Bloomberg

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