News Editorial

Friday 22 August 2014

'Bond' finally stops being a dirty word

Published 14/11/2012 | 17:00

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THE word "bond" has become indelibly associated with bad news: high-bond yields leading to bailouts; holders of bonds not being burned; auction of bonds falling flat; and so on, and so on.

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Yesterday, bonds were good news – perhaps even historic news – with remarkable results from Bank of Ireland and the ESB in selling their bonds to lenders.

It is a useful reminder that the obscure world of bonds is just a particular way of borrowing. It has the advantage that, because the potential lenders make offers, it is possible to see how keen they are to lend.

That is why the Bank of Ireland's borrowing of €1bn was so encouraging.

Lenders – typically other banks and pensions funds – made offers totalling €2.5bn at an average rate of 3.2pc.

Faced with that response, the bank decided to take double its planned €500m.

The historic aspect is that this is the first borrowing without the infamous bank guarantee since the crash of 2010. The bank was standing on its own feet and the lenders – almost all from outside the country – clearly felt that it could do so.

A corner has been turned. There is still a long, hard road ahead, but foreign investors now seem more convinced than many of its own citizens that the country will emerge from this nightmare.

On Monday, the ESB was able to borrow €500m at just under 4.4pc, having had offers totalling more than 10 times as much.

The Government's own borrowing costs continue to fall. Too much should not be made of this week's planned €500m borrowing, since the money will be repaid in February. But there seems little doubt that the National Treasury Management Agency could borrow for two years at less than 3pc – a figure which would have been unimaginable a year ago.

Welcoming these developments, Finance Minister Michael Noonan rightly said that they were important steps in the return of financial independence for the State.

With the Budget weeks away, he and his colleagues must do better a better job of putting the inevitably unpopular measures in a context which promises that hope of better times is ahead.

Irish Independent

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