Cantillon: never a better chance for cheap money

Barring some unexpected turn in financial markets, Ireland will be raising about €3 billion in new 10-year borrowings this morning, probably at an interest rate in the range of 1.1 to 1.25 per cent. In the topsy-turvy world that is today’s financial markets, investors desperate to find a safe return – any return – on their money are prepared to lend at these levels.

This creates a significant opportunity for the National Treasury Management Agency to raise long- term funding at rock- bottom rates, helped by the massive European Central Bank bond-buying programme known as quantitative easing. Indeed you could argue that it should look to raise more than the €10 billion maximum fundraising target set for this year, provided rates remain low. There is an argument to lock in the gains for the long term and raise some more very long- term 30-year borrowings. This might cost 2 to 2.5 per cent, but if the ECB succeeds in raising inflation to 2 per cent, as is its target, this is still cheap, cheap money.

Ireland has made the journey from being one of the peripheral market outcasts – the so-called PIIGS – to being able to borrow at rates just above the core euro zone countries. Irish 10-year bond rates, trading in the market at just over 1 per cent, are closer now to France at just under 0.9 per cent, than Italy, where 10- year rates are just under 1.5 per cent. Our high national debt level means we still pay a touch more than countries which trade at rates just above the German inner core – Belgium, Austria, France and Finland – but we are close to them and have separated ourselves in the minds of investors from all the other peripheral states. We have moved from the PIIGS to what you might call the BAFFI group.

Holding on to this status in the euro zone hierarchy should be a central target of the new government, since the less we pay in interest rates on new borrowings the more cash is left to spend elsewhere. Already the average cost of all our national debt has fallen from 3.8 per cent a year ago to under 3.5 per cent today. Rates should stay low provided investors remain confident the next government will continue to cut the deficit and reduce the debt burden. And, as the expression goes, sin scéal eile.