A bond market view of recent Irish bond history...

Excellent post by Ciaran O’Hagan on IrishEconomy:
irisheconomy.ie/index.php/20 … ment-43426

YM what does he mean here?


Had we not guaranteed the banks our borrowing costs would be much lower, we paid 20bp (.2%) more than Germany only 19 months back.

So the guarantee sent out the wrong (right?) message. But what if there was no guarantee?

Well there are a couple of bits to that.

Europe was already moving to a new deposit system covering retail deposits to a higher level - an interim mechanism could have been put in place there.

Existing bonds were in no danger, as in, they were in no danger of going anywhere. You can’t cash in a bond early, so the holders would just have had to lump the risk or sell at a loss. It’s tougher even than a term deposit account - no amount of whinging about how your granny needs a hip job all of a sudden is going to get the money back. So there was no danger of a flight of bonds, therefore the guarantee of the bonds was put in place to be supportive of bond price.

But this was ridiculous. It meant the state was guaranteeing 440 bn of the banks’ liabilities. A state with a rapidly dwindling income that peaked at 60 bn euro anyway!

So the guarantee was vastly more than the state could ever pay out on.

If there hadn’t been one, things probably would have muddled through anyway. The banks might have gone bust; the state would have been on the hook for guaranteed (probably all) deposits; but the banking system would probably have continued ‘working’, because nobody would really want it to ‘stop’!

Yeah, and lets never forget whos idea the bank guarantee was - DAVID MCWILLIAMS.

Yep thats right, Dalkey pretty boy proposed a guarantee of all bank liabilities on Primetime, a few weeks before the government did it. Which proves to me that he’s not a serious analyst, but an TV entertainer on a par with James Kramer.

McWilliams was right, for those who forget september 2008 please read this PIN RULE which was formulated 2 weeks before the guarantee.


thats a ridiculous comparison , McW s plan was for a rapid clearout of the banks and not putting the taxpayer on the hook. I think he was naive in believing lenihan was anything but a pawn of the bankers. Kramer is a buffoon who can be rated alongside the brendan keenans/jim powers of this world

How would you know? You said that gold would be at $3000 by last christmas.

The “guarantee” according to McW was temporary and to be followed by an orderly wind down of failed banks.

It was also for new debt only, not for subordinate bonds, not for Anglo…


Sorry to be dumb here, do you mean the price at which they were selling was where the protection was aimed as opposed to the existing bonds? And if that’s the case, did the “blanket guarantee” automatically cover bonds bought after the guarantee - if you get my meaning.

So the guarantee for bondholders was pointless, unless they knew back then that there were very serious issues with Anglo and decided back then that the bond holders would be protected, at all costs, no matter what the outcome?

Yes, it only had an effect on the market value of already sold bonds (or of those that would expire during the term of the guarantee, I suppose - raises some interesting thoughts).

Yes, it automatically covered bonds after the guarantee, but it was only relevant if they would repay before the guarantee did. So now we have a large amount of bonds that expire in September 2010…

As I say, new debt or old debt due to be repaid during the guarantee was covered, other debt was covered if the banks collapsed. If the banks collapsed, the state would too (as the amounts were too large to cover). So it can only have been to the benefit of expiring bonds within the two years of the guarantee.

edit: I think!

Ok - so we have the deadline looming and even if they were to extend the guarantee it really wouldn’t make any odds if the bonds are mature. But - is there a way that they can defer payment? What if the obligation to the bondholders leaves them breaching the new banking regulations? (I’ll use the FR actions with the Quinn group this week). Or is this where the 10 billion is earmarked for? (I know, I’m asking a lot of questions, it’s just that it’s like there are three Anglo Irish Banks being juggled at the moment, one a facade going about business as normal, another buried in various forms of bonds and then NAnglo, and the s*** has to hit the fan at some stage!)

Unfortunately, you are right. The three banks are stuffed, BoI possibly to a lesser degree. I think Anglo and INBS are being pushed forward as the smelliest, but there is a distinct whiff going round.

Deferring payment would be default. So it would achieve nothing.

I don’t think the 10 bn for Anglo is in any way connected with paying back guaranteed debt, more to do with paying back the ECB and Irish Central Bank repo arrangements for those bits that will go to NAMA.

So it is rollover time. The new guarantee, I believe, allows for the rollover of debt issued under the old guarantee for up to a further five years.

I haven’t done a tot-up yet of what the cost has been, but one of these week-ends when I have time I will try and start that off.

Make sure you have a brandy standing by :stuck_out_tongue: . Thanks for that.