Citi bearish on Irish bonds despite NTMA role
US bank Citigroup is predicting that Irish bond prices will slide further, even though the company is one of the National Treasury Management Agency's primary dealers in government bonds.
The NTMA maintains a list of 15 primary dealers that buy Irish government bonds and then resell them on to the market. Citigroup is one of the 15 and it is also a member of the Irish Stock Exchange.
It maintains a so-called 'Chinese wall' between its primary dealer bond desk and its team of fixed-income analysts.
It is this team that has published some of the most bearish forecasts on Irish bonds in the past week.
The bank said last week that the gap or 'spread' between Irish and German bonds was set to widen further as markets grew jittery over the amount of debt the Irish banks have to roll over.
Citigroup estimates Irish banks have about €13bn of debt to roll over in September, with about half of that expiring in just a two-day period.
"Any difficulties that the banks have in rolling over debt will add to the Government's woes and could further damage market sentiment," said Robert Crossley, a fixed-income strategist at Citigroup in London.
"We are not confident that this is the turning point for Irish spreads," Crossley said.
"The momentum is for further widening. Spreads will only re-tighten once buyers outweigh sellers. Short term, that seems unlikely."
Yesterday, Irish bond yields remained elevated, but some pressure eased on 10-year money, with yields dropping 12 basis points to 5.5pc.
Yields on shorter-term money were the second-highest in the eurozone after Greece.
Yields on six-year money were at 4.5pc, compared with Portugal on 3.9pc for five-year bonds.
Irish banks have significant debt roll-overs to deal with in September, with Anglo, the most fragile of the banks, due to roll over €7bn.
All the Irish banks may need to avail of funding from the European Central Bank to get them through this period.
The ECB earlier this year loosened its rules on the kind of collateral it would accept.