Saturday 21 April 2018

Central Bank sells off bonds

The Central Bank in Dublin
The Central Bank in Dublin
Donal O'Donovan

Donal O'Donovan

The State has bought back and cancelled another €500m of bonds linked to the IBRC liquidation.

The deal puts a stop to future interest payments on the costly debt, but is controversial because the money paid for the bonds will be destroyed.

The National Treasury Management Agency (NTMA) announced the cancellation of €500m of bonds due to be repaid in 2041 after buying them back from the Central Bank. The bonds are part of the €25bn of government bonds used to compensate the Central Bank for cancellation of the Anglo Irish Bank promissory note, an earlier government debt used to rescue the bust lender.

When the renamed IBRC was put into liquidation in 2013, the promissory notes had to be paid back with the new debt. Under pressure from the European Central Bank (ECB), the Central Bank here has been selling off the bonds, with the NTMA so far the only known buyer.

Central banks are increasingly dominant in the bond market. In addition to soveriegn bonds they are buying bonds issued by companies here under the ECB's quantitaive easing programme.

Acting through the Bank of Finland, the ECB now owns bonds issued by Ryanair, the ESB, Kerry Group and the DAA, while Eir, which is not eligible for QE, has seen its debt costs tumble as normal bond buyers are forced to buy its relatively riskier debt.

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