Public Service pensions are unfunded in the sense that the recipient of the pension treats the pension contributions as cash and spends them. There are lots of ways to look at this liability. I am not sure a 70 year DCF is a particularly good choice but surely a 70 year DCF on the corresponding contribution stream should at the very least be included be included for balance?
A letter to Pascal. from the Central Bank. The National debt was around 63% of GDP at the end of 2018.
She wants a formal target of a debt of no more than 45% of GDP and she wants any ‘windfall’ this year to be used to reduce absolute debt which otherwise looks like being around €205bn at end 2020 after the cash buffers are due to be cleared out.
I totally agree that ending 2020 with a headline debt of LESS than €200bn is a good thing…but will Pascal dig out that poxy HSE yet again???
Here we see a woman seeking to exercise authority over a man in the public space, something that for thousands of years we have known is not a good thing, emphasised repeatedly in the Bible, a repository of human wisdom learned the hard way over hundreds of generations, we no longer need ask why such things might be true, instead we must simply understand that our ancestors learned these things and pass them on to us as a gift, the hard learned wisdom of thousands of years.
We ignore this wisdom at our peril.
Or deny it because THE PATRIARCHY bequeath it to us!
The UK Bilateral is now in the unwinding process. As part of the bailout the UK disbursed around €4.0bn by 2013, on which we paid around €100m a year in interest for a number of years. The bilateral is to be paid off in 8 tranches of €500m or so and we shall pay the third of the 8 at the end of this month with the last tranche due in early 2021.
The collapse in sterling in recent years has reduced both the outstanding value of the bilateral and the interest rate burden which was constant from 2014 to 2016 at €100m a year before reducing some since.
We only have to pay back €3.5bn now as against the €4bn we originally borrowed. And we will only owe around €2bn in a few weeks time.
Its nice to have some good news now and again!
But in perspective.
a) we will retire c.€15bn in sovereign debt on which we pay near 6% interest.
b) near €2bn of UK Bilateral on which we pay near 3%
and we will replace these with 10 year sovereigns (mainly) that we issue at 1 to 1.1%
BUT 2020 is the last year when we will replace large gobs of expensive debt with equally large gobs of much cheaper debt (and with that the annual interest bill lowers significantly) . We gain c.€500m in 2021 from reduced interest…yaaaaay that is the annual HSE overrun covered.
IF sovereign rates are still this cheap when we go back into the market in late 2021 we will be swapping more like 3% for 1% paper and the savings are then smaller year to year thereafter, we would save c,€200m a year, averaged, each year from 2022 on to 2027.
On another matter, given the rude GDP growth levels seen in Q1 and Q2 2019, and also assuming the Tories and the DUP don’t blow both their legs off instead of inflicting a flesh wound or 2 in the end, the Debt/GDP ratio is currently very well set to go below 60% in Q4 2020 latest after we pay off a bond of around €9bn in October 2020.
Revised GDP numbers indicate we finished 2018 with a debt/gdp ratio of near 63% Debt to GNI* would then go under 90% in 2020 too.
But that benign view depends entirely on a pair of flatulent toads named Boris and Arlene.
Here is the schedule (apart from €2bn of UK Bilateral) for the next year. We have to pay off €25bn in a year. Of this the NTMA has around €23bn in hand already
BUT some of that may be required to deal with Brexit. Nobody knows. At this moment the expected redemptions are almost fully funded and we need not participate in the bond markets for around a year or more. We basically don’t need to borrow, in other words and can take a holiday by and large or throw out some small shorter maturity issues if we must.
5.9 Treas Bnd 201918/10/2019 €6bn
4.5 Treas Bnd 2020 18/04/2020 €10.6bn
5.0 Treas Bnd 2020 18/10/2020 €6.5bn
0.8 Treas Bnd 2022 15/03/2022 €6.8bn
0.0 Treas Bnd 2022 18/10/2022 €5.1bn
3.9 Treas Bnd 2023 20/03/2023 €7bn
3.4 Treas Bnd 2024 18/03/2024 €8bn
5.4 Treas Bnd 2025 13/03/2025 €11.5bn
Luckily we don’t have to do much in the bond markets for the next 2 years because there is something badly wrong with the bond market this week. It is a good time to be out of it.
We can issue some 2 year, 4 year, 5 year and even 8 year if we must but the market is showing strong signs of pushing back against longer issuances right now.
As if the U.S. Federal Reserve didn’t already have enough on its plate heading into its meeting on interest rates this week, chaos deep inside the plumbing of the U.S. financial system has thrown policymakers an unexpected curveball.
Cash available to banks for their short-term funding needs all but dried up on Monday and Tuesday, and interest rates in U.S. money markets shot up to as high as 10% for some overnight loans, more than four times the Fed’s rate.
Appreciate these updates on the debt, it’s a good thing to be reminded of / keep track of.
We’ve got our own flatulent toads, some of whom could be in government by 2021.
It will always be with us, the only issue is how much it will cost. The overnight Repo situation in the US bodes badly for sovereign bonds in my opinion but we should not be forced to issue at unfavourable rates unlike the Italians, who need to refinance €20bn a month of theirs in a good month and who pay whatever it takes to get the cash in.