Pensions industry eyes a gamble on Irish bonds
We had a similar story on Sunday
Pension funds can take the long term view on Ireland, and they are correct that things wont always be as dire as they are today.
The Irish pensions industry is so tempted that it is currently lobbying the government to be allowed invest in high-risk Irish government bonds in a last-ditch gamble to plug the €13 billion hole in the country’s defined benefit pension schemes.
And if the government is happy too sell bonds to foreign investors but not the Irish pensions industry, would that suggest a sly intention to default?
Let me get this straight. The cost of credit indicates an estimate 5% pa risk of default and Irish pension funds want in? Madness.
From my understanding of it, pension funds are specifically mandated to only consider AAA or AAA+ rated investments.
Because Ireland went mad “for de ould property”, it’s banks blew up, the economy blew up and it’s ratings has been downgraded.
Because the pension funds went mad “for de ould property and de banks”, they have a massive hole in their fund.
They now want to invest in lower rated investments to try and get a higher return in an effort to fill the hole.
What could go wrong?
Course the best way to do this would be leverage up in synthetic junk sovereigns… LTCM had a very successful model that many like to follow. Scholes-Black for beginners is, I believe now shipping from Amazon…