Wednesday 20 February 2019

Boost for Irish government bonds as Citi rules out Greek-style default

Donal O'Donovan

Donal O'Donovan

Banking giant Citi says private investors that lend to the Irish government on the bond market no longer risk losing their money in a Greek-style debt default.

The view could help boost appetite for Irish bonds as the country seeks to consolidate the return to funding itself on the markets in time for the end of the bailout next December.

Until now Citi have consistently been among the most downbeat analysts when it comes to Ireland.

However, economists at the US bank no longer think Ireland is likely to default on its debts in the coming years, according to a research note circulated to investors.

Up to now the bank's economists have warned investors that Ireland could be forced to renegotiate its debts in 2015, by asking for more time to pay loans and for a cut of 1.5pc in interest rates.

That is no longer regarded as the most likely scenario by the bank.

That is because of last week's deal to ease the cost of bailing out Anglo Irish Bank by renegotiating the notorious "promissory note" and higher than forecast growth, analysts said.

They said they no longer expect an Irish "sovereign debt restructuring" involving privately held bonds in coming years. Last year, private-sector lenders to Greece were forced to suffer big losses when it became clear that the country's debts were simply too great to honour, but "official" lenders such as the European Central bank were spared.

Citi's chief economist Willem Buiter (below) said the opposite scenario could happen here.

If Ireland does need greater flexibility to cope with high debt it is likely to come from "official" lenders that are now owed around 55pc of the national debt, including the European bailout funds, the report said.

"The willingness of EU policy makers to show flexibility for Ireland may well be enhanced by Ireland's strong compliance with troika plans," the report said.

That could come in the forms of maturity extensions, reduced interest rates or deferral of interest, the bank said.

Private-sector lenders are unlikely to be asked for such concessions, the bank said.

Ireland has already seen big cuts in interest rates charged by the European bailout funds, and the average repayment periods have also been extended.

The better outlook for Ireland means the country could be in for a boost from the ratings agencies, the report said.

"(Rating agency) Moody's will probably return Ireland to an investment grade rating this year," Citi analysts said.

Moody's is the only one of the main rating agencies that does not regard Irish government debt as "investment grade", the term for safer investments.

Irish Independent

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