MICHAEL SOMERS, chief of the National Treasury Management Agency, has declared that the Government has “turned the corner” in its efforts to convince the global markets that its economic plan can stabilise the public finances.
Reporting a marked improvement in the attitude towards Ireland among international financiers, he said certain investors not seen for years were again in the market to buy Irish sovereign debt. However, he said Ireland’s reputation in the international markets would be damaged if the electorate rejected the second Lisbon Treaty referendum.
In addition, he suggested Irish stockbrokers should reduce the fees they charge to market sovereign bonds to make them more appealing to retail investors. “Let’s put it to the stockbrokers to see will they reduce their fees and make it more attractive for people to buy Irish bonds,” he said.
The NTMA has raised €23 billion of the €25 billion required this year to meet a €5 billion debt repayment and to provide €20 billion for the exchequer, Dr Somers said yesterday at the publication of his annual report. Four further bond auctions are scheduled for August through to November.
Still, the agency’s annual report points to the rising cost of the advance in Ireland’s sovereign debt. While interest payments on the debt were 3.8 per cent of tax revenue in 2008, a rise to 9.4 per cent is predicted this year. This is set to rise to 14.2 per cent in 2010, 16.5 per cent in 2011, 18.1 per cent in 2012 and 18.7 per cent in 2013.
“While the interest burden will increase substantially over the period 2009-2013, it will be no greater than the levels experienced in the mid-1990s,” the NTMA said.
Dr Somers said there has been “huge change in general sentiment towards Ireland” in the last couple of months.
“When we started out the year there was an awful lot of scepticism about where we were going and what we were doing, and one of our early bond issues that we had. We looked originally at trying to do a long-term deal; we couldn’t do it. We ended up doing a deal for three years, which was the best we could get.”
At that stage, he said, the NTMA decided to “swallow hard” and build on its position.
“More recently, which shows the change in sentiment, we were able to get 10-year money, and we got €6 billion in 10-year money. I think once we got that money, people became convinced that cash is available, that there is really no difficulty here,” he said.
Since then, he added, the yield on Irish bonds has fallen by about three quarters of a percentage point. He also reported a decline in Irish credit default swap rates, a key measure of the market’s perception of the risk in Irish debt.
“Even this week, we launched one bond issue – we were looking for €1 billion, we got about €3.5 billion offers to it. Also this week we sponsored a new US commercial paper programme; we got $1.2 billion out of that at an interest rate for three months of just about a half per cent. This morning we had an auction, where we got again €3.5 billion offered to us. We took €1 billion and again the rate of interest for three and a half months is one half of one per cent.”
Dr Somers said the State has built up a considerable cash pile “just in case”, and to reassure the markets. “We’ve about €25 billion in cash, instantly available for anything. I think this has given huge confidence also to the markets that no matter what happens we’ve more than enough cash.”
He made light of well-publicised moves by credit rating agencies Standard Poor’s, Moody’s and Fitch to cancel Ireland’s triple-A credit rating, stating that those manoeuvres had been priced in by the market long in advance and had little bearing on the price of Ireland’s debt.
