Wednesday 17 January 2018

ECB buying of bonds not crucial to lower rate on Irish debt

Brendan Keenan

EUROPEAN Central Bank (ECB) purchases of Irish government bonds last week was probably modest, amounting to less than 10pc of those traded, according to Dublin-based Glas Securities.

"It is encouraging that last week's tightening (of spreads over Germany) in the peripheral country markets -- and in Ireland in particular -- was not dependent on ECB purchases," the firm said in its morning comment.

The firm specialises in fixed-income markets like bonds. It noted the ECB statement that it bought €237m of eurozone government debt last week, under its Securities Markets Programme.

"Turnover in Irish government bonds last week was about €2.6bn, which would lead us to conclude that the ECB participation was no more than single digit percentage of the total market turnover," the firm said.

The National Treasury Management Agency (NTMA), which borrows money on behalf of the State, said yesterday it would go ahead with the usual monthly bond auction, despite recent rises in the interest demanded by investors on Irish debt.


The NTMA plans to borrow up to the usual monthly figure of €1.5bn in an auction of eight-year and four-year bonds. NTMA executives say cancelling a monthly auction would send the wrong signal.

Ten-year Irish bonds were yielding 5.75pc yesterday -- down from peaks above 6pc last week, but 1.3 percentage points more than six months ago.

"It may be challenging to get €1.5bn away in next week's auction in this atmosphere," one analyst said. Past ECB purchases -- along with collateral for loans to the banking system -- mean the ECB and eurozone central banks are probably now the largest holders of Irish government bonds, Ciaran O'Hagan, head of rates research at Societe Generale in Paris, said in a blog on Irish

"From IMF (International Monetary Fund) reports on Greek debt holdings, I'd guess the ESCB (European System of Central Banks) now holds more than €15bn of Irish government debt, compared to a total outstanding of some €90bn," he said.

Greece yesterday raised €1.17bn in a sale of short-term 'treasury bills', which are due for repayment in six months.

The Greek debt-management agency said the issue was oversubscribed by investors four times over, but the yield demanded was 4.82pc, compared with 4.85pc in a similar sale in July.

On Thursday, the NTMA issued €250m of treasury bills, at a yield of 2.2pc.


The head of the IMF told a conference on sovereign risk and fiscal policy in the euro area that his preferred solution would be to move towards a centralised fiscal authority, with political independence comparable to that of the ECB.

"Such a leap towards European political integration appears unlikely in the foreseeable future," Dominique Strauss-Kahn said at the Bruegel Institute-IMF conference in Brussels.

One alternative would be to shift the main responsibility for enforcement away from the European Council of government leaders. "This would go a long way towards minimising the risk that narrow national interests interfere with effective implementation of the common rules," he said.

Irish Independent

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