Doubling down on a good hand

From an Irish perspective, one of the big differences between the Covid-19 crisis and the 2008 financial crisis is the state of the public finances. Back then, we were a financial basket case. Not only had we tied our day-to-day spending into property-related taxes, we had also guaranteed the banks, which had tied their finances to property. When the property genie disappeared, so did the State's financial standing. Ireland Inc was effectively booted out of the bond markets in late 2010 and forced into a bailout soon after.

A decade later and things couldn’t be more different. Even though we’re in the teeth of a major crisis and headed for the biggest recession in economic history, we’re borrowing at almost zero interest rates and there’s no end of lenders willing to do business with us, a reflection of the Republic’s transformed financial status.

The National Treasury Management Agency (NTMA) is doubling down on this financial tailwind to stock up on cash needed to deal with the pandemic. Today it sells an expected €4 billion in 10-year bonds in an auction that's expected to be heavily oversubscribed. This will bring its borrowing for the year to €16.5 billion.

Before the virus hit, the agency was planning to borrow €10-€14 billion this year; now the requirement is €20-€24 billion. The Government is expected to run a €30 billion-plus deficit this year – due to a combination of more health and welfare spending and less tax revenue – and part of it will be funded via NTMA borrowing. Normally the agency wouldn’t have as many big syndicated transactions in such a short space of time but it wants to bank the money while demand is there. A wise option, no doubt. As countries across the globe borrow to fund their pandemic bills, the level of indebtedness is set to balloon. Will that in turn change the current market atmosphere? Time will tell.