Wednesday 26 October 2016

Shane Ross: Bond sale never fit the bill

Shane Ross

Published 08/07/2012 | 05:00

HAVE you got your bullshit detector? "Ireland successfully returns to world bond markets" flashed across RTE's Aertel on Thursday morning.

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No such thing happened.

Yet RTE peddled the same message nearly all day.

On its website our responsible national broadcaster ran an almost identical sentence: "Ireland successfully raises €500m on bond market" as the day's 'most popular' story. It also carried "NTMA successfully auctions €500m at a better than expected rate of 1.8 per cent" as the eighth most popular.

The same story was in RTE's first and eighth 'most popular' position! Ahem. RTE had swallowed the spin and was going overboard on our phantom return to the world markets.

Few stories have been so well spun as the nonsense being peddled by the National Treasury Management Agency (NTMA) last week about the €500m Treasury Bill issued by Ireland.

As the NTMA tells it, Ireland is back in the fold; global dealers have been elbowing each other out of the way in the stampede to buy Irish paper and lend us money. And it is all thanks to the NTMA.

The spinners' version of the story is that global dealers were prepared to accept a lowly 1.8 per cent rate in the scrum to vote confidence in Ireland; that the €500m offer was 2.8 times oversubscribed.

Happy days are here again. And it is all thanks to the NTMA.

After the summit 10 days ago, we are beginning to lose the run of ourselves.

Someone allowed RTE to get a bit overexcited about the story. In the group euphoria about it, the RTE website even forgot a few inverted commas.

A mere opinion -- of undiluted optimism on the bill -- was printed as though it was news. The words of a bullish dealer from a major bank were presented as RTE gospel. The website told of "how encouraging it was to note that the bulk of the interests involved were in the international space with some domestic involvement".

RTE forgot the inverted commas. Consequently it read like an NTMA press release.

One national deity was looking after another.

To give the RTE optimists their due, they amended the item after a telephone call.

So that was it: Irish debt is in huge demand; we are back in the bond markets; dealers will pay more than expected for the privilege; the bulk of the demand came from overseas.

Reach for the detector.

Earlier in the week, we had even been softened up for this great triumph of the NTMA, as the media was fed with advance notice of the issue. We were being conditioned to wonder whether Ireland would be able to sell this debt. It was spun as a defining moment, flagged endlessly on the news bulletins. Lo and behold, triumph or disaster beckoned. A nation waited to see if the recovery was on the way.

Cynics would be forgiven for suspecting that the deal was in the bag a long time before the formal lap of honour on Thursday morning. Yet no one dared to rubbish all the spin. The monopoly of wisdom enjoyed by the naked emperors of the NTMA is never challenged.

Until, at last, on Thursday's Morning Ireland, Stephen Kinsella of the University of Limerick injected a little sanity into the NTMA hype.

Usually when an academic comes on the radio, it's time to switch stations. As a breed, they tend to numb the brain and complicate the argument.

Not Kinsella. His message was one of glorious simplicity. He did not want to dump on the story, but he wanted a bit of perspective. Kinsella was a academic armed with a bullshit detector.

According to Kinsella, the NTMA was flogging bills, not bonds. There is the world of difference.

Ireland is not back in the world's bond markets. What we are selling are short-dated bills, often described as riskless paper.

These bills have a maturity date of just three months. When Ireland is back in the bond market it will be selling five- or 10-year bonds. And that is a long way off.

Kinsella was the first guy to come forward and prick the balloon. Surprisingly enough, no one in the ranks of the NTMA plutocrats put their head above the parapet to admit that the €500m issue was Mickey Mouse stuff.

The truth is miles away from the spin that was swallowed by RTE and other news outlets. A €500m Treasury Bill has been sold. It is utterly riskless because it will be repaid in three months. It is not a bond. Nor are we back in the global bond markets.

The size of the issue (€500m) is tiny. A decent-sized pension fund manager could take the lot.

The 1.8 per cent return is sky high, not rock bottom. On the same day, the ECB dropped its rate to 0.75 per cent. Media bulletins had relentlessly blared out the news that the return of 1.8 per cent was much "lower than expected".

"Lower than expected" by whom? We were never told by whom. But I think we can guess. Some pretty smart anonymous spinning infiltrated a figure of over 2 per cent into the media. It became the common consensus. Anything lower than 2 per cent would be greeted as a triumph. Hey presto, 1.8 per cent. The overpaid guys in the NTMA are magicians, saviours of the nation.

Down off planet NTMA, the 1.8 per cent figure places us somewhere between equivalent bill rates in Italy and Spain, two of the most risky basket cases in Europe. Equivalent French and German bills are offering 0.3 per cent and 0.1 per cent respectively. When it comes to selling short-dated bills, we remain firmly in the stable of the PIIGS (Portugal, Italy, Ireland, Greece, Spain).

Indeed, to put the "success" into perspective, both Greece and Portugal managed to sell off similar bills at the height of their national disasters.

Anything they can do, we can do, too.

After all the unattributable spinning, a real person, John Corrigan -- the €400,000 (plus) boss of the NTMA -- appeared on RTE's News at One with Sean O'Rourke. Following the build-up of phoney uncertainty, Corrigan surfaced to take a bow. He accepted the plaudits with practised humility. He was "pretty pleased" that the bill had been "substantially oversubscribed". He was "pleased with the rate". Indeed, he insisted that the "primary dealers" all say that there was good interest from the traders in continental Europe. John sounded so surprised.

Perhaps there really was interest from overseas. It is difficult to know. There are conflicting views. On Friday, Alan McQuaid, the ace economist who was swooped on and recruited by Merrion Stockbrokers, when Bloxhams went for its tea, told me: "I'd say a lot of it is domestic."

My guess is that he is right. Back in January, the NTMA attempted to swap bonds due in 2014 for similar products dated 2015.

Despite hopes that foreigners would bite the bait, the issue was supported by native banks -- most of them state- owned. Not a hard sell, just a bit of arm-twisting.

We will probably never know what happened behind the scenes, or how much the NTMA spent on spinning a good yarn about last week's deal. Its inner workings are a secret, still protected from the Freedom of Information Act. It remains unaccountable, a master at behind-the-scenes operations.

Nevertheless as Kinsella put it so eloquently: "You cannot win a PR war with bullshit."

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