Wednesday 25 April 2018

Pension and insurance sector drops €934m of Irish bonds

Donal O'Donovan

Donal O'Donovan

Irish pension and insurance companies' holding of Irish government bonds have dropped by almost €1bn from the start of last year – potentially undermining the State's bid to return to the markets.

The insurance and pension sector holds just €11m of government bonds, down from €945m at the start of 2012, according to the latest figures from the Central Bank.

The new total represents just 0.2pc of the €115bn in bonds issued by the National Treasury Management Agency (NTMA) on behalf of the Government.

The figures show that Irish money managers have been slashing their holdings just as the Government has been trying to return to borrowing on the markets.

The total amount of bonds held by insurance companies and pension funds has fallen even as the overall stock of bonds has been growing, the data shows.

The Central Bank, which has been forced to take on government bonds as part of the deal to shut down Irish Bank Resolution Corporation (IBRC) is now thought to be the biggest single holder of government bonds.

The lack of faith in Irish bonds from the pension and insurance sectors here is a blow to the NTMA, which has been trying to woo domestic investment as part of its push to exit the bailout. The NTMA believes heavy reliance on international investors in the past was one reason why Ireland was so badly hit at the start of the euro crisis in 2010.

Countries such as Italy, whose bonds are mainly held at home, were less hard hit when international investors pulled back from the euro area.

Critic

Davy Stockbrokers' analyst Donal O'Mahony has been an outspoken critic of the lack of investment from the pension sector in particular.

He sees it as one reason why Irish pension schemes have large deficits after they missed out on the dramatic rise in the value of Irish bonds in 2012, because they were selling off their holdings, or not reinvesting as bonds were repaid.

However, in many cases pension managers and trustees feel forced by regulators to invest in lower return assets that are also less risky.

The NTMA has tried to encourage greater investment by pension funds in particular, including developing amortising bonds, that repay interest and capital and so can create a better income stream for investors.

In contrast, households and families have stuck by the State. Households hold €183m of government bonds, mainly in the form of Post Office savings products. That's down from €223m at the start of last year.

Irish Independent

Business Newsletter

Read the leading stories from the world of Business.

Also in Business