What a difference a decade makes ! Anthony Linehan Deputy Director - - PowerPoint PPT Presentation

What a difference a decade makes !

Anthony Linehan

Deputy Director in Funding and Debt Management National Treasury Management Agency

Then and now:

2010

• €20bn to raise
• Crisis (Banking crisis)
• Economic slowdown

– -22% v. 2007 peak (in GNI* terms) – Unemployment: 15.7%

2020

• €20bn raised of €20bn - €24bn range
• Crisis (Covid-19)
• Economic slowdown

– -10% to -20% (in GNI* terms) [forecast] – Unemployment: ~28% (Covid-19 adjusted rate) [CSO has urged caution

• n Covid-19 data. The true labour force

number is unknown – the labour force survey for Q2 will be key]

10-year and 2-year yields

• 5

5 10 15 20 25 30 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 10 year 2 year

EU/IMF Programme Entry Moodys Downgrade OMT EU/IMF Programme Exit ECB QE Brexit ECB PEPP starts

10-year yields

2009 to 2010 2019 to 2020

1 2 3 4 5 6 7 8 9 10 10 yr

EU/IMF Programme Entry

• 0.6
• 0.4
• 0.2

0.2 0.4 0.6 0.8 Jan-19 Mar-19 May-19 Jul-19 Sep-19 Nov-19 Jan-20 Mar-20 May-20 Jul-20 10 yr

Then and now; issuance:

2010 2020

Weighted Average Cost 4.70% 0.27% Weighted Average Maturity 8.8 11.1 Issuance Amount (€ millions) 19,873 20,000 Interest cost (€ millions) 934 54

Then and now; debt:

Stock of Irish Government Debt Interest payments

N.B.: at these elevated debt stock levels, each 1pp added to the average interest rate is worth €2-2.5bn each year.

€0mn €1,000mn €2,000mn €3,000mn €4,000mn €5,000mn €6,000mn €7,000mn €8,000mn €9,000mn 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Interest 50 100 150 200 250 2010 2020f €bilions

Debt maturity profile 2010

• 2,000

4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 20,000

€m

Debt maturity profile 2020

Ireland v. selected countries (10-yr spread)

• 12
• 10
• 8
• 6
• 4
• 2

2 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 German - Ireland Spread (10Y) Belgium - Ireland Spread (10Y) France - Ireland Spread (10Y)

What is different this time ?

• Crisis is worldwide – Ireland is not an outlier.
• Better starting point – economy is not over-leveraged.
• Credibility of Irish Government having managed the last crisis well.
• Net issuance is lower.
• More EU solidarity
• ECB intervention: key difference for the Eurozone versus 2010.

Ireland has repaired balance sheets – especially households

0% 50% 100% 150% 200% 250% 300% 350% 400% Public and Private debt (% of GNI*) Private debt (% of GNI*) Public debt (% of GNI*) 2003 2008 2013 2019

Legacy of last crisis is on government balance sheet not private sector Source: CSO, CBI Note: Private debt includes household and Irish-resident enterprises (ex. financial intermediation) CBI quarterly financial accounts data used for household and CSO data for nominal government liabilities.

ECB intervention

ECB bought €2.5trn of EA sovereign debt - will add another €1 trn by mid- 2021

10 20 30 40 0.5 1 1.5 2 2.5 3 2015 2015 2015 2016 2016 2016 2017 2017 2017 2018 2018 2018 2019 2019 2019 2020 € billion € trillion ECB cumulative purchases (PSPP, PEPP) Ireland (RHS) 5 10 15 20 25 2010 2020f NTMA Issuance ECB net purchases of IGBs

ECB has become a major holder of Irish debt – likely c.25% by year-end

50 100 150 200 250 2006 2008 2010 2012 2014 2016 2018 2020f Billions € IGBs* Retail Eurosystem Holdings Other Debt** Total Debt

Source: CSO, Eurostat, CBI, ECB, NTMA Analysis *IGBs excludes those held by Eurosystem. Eurosystem holdings include SMP, PSPP and CBI holdings of FRNs. Figures do not include ANFA. **Other debt Includes IMF, EFSF, EFSM, Bilateral as well as IBRC-related liabilities. Retail includes State Savings and other currency and deposits. The CSO series has been altered to exclude the impact of IBRC on the data.

Issues for Pension Funds

• 2010

– Declining ratings quality but good yields – Developing Bond Market – Fear of debt restructuring – Question of EU support

• 2020

– Good and improving ratings quality but low yields – Developed and liquid Bond Market – Low interest rate underpinned by ECB for foreseeable future.. – Inflation Risk in Long Term?

Issues for Government

• Sparking economic growth while managing a large outstanding

and increasing debt stock

– Need to balance borrowing, spending and debt levels

• Educating the public that fiscal largesse is not endless
• Low interest rate underpinned by ECB for foreseeable future.

– Inflation Risk in Long Term?

Innovations since 2010

• Amortising Bonds

– The NTMA first issued amortising bonds in 2012. – They were issued to meet the needs of the Irish pensions industry , particularly for annuity payments. They were issued at just under 6%. – Now yields would be well under 1% so less attractive.

• Private placements

– The NTMA also issues bonds by private placement, under its EMTN (Euro Medium Term Note) Programme. – In 2020 to date, we have issued 5 bonds by private placement, totalling €950m. Three of these were 100 year issues.

Cont.

• Inflation-linked Bonds

– The NTMA issued its first inflation-linked bond in April 2017: €610m. – It matures in April 2040 and has an annual coupon of 0.25%. The interest payments and principal repayment are linked to the Eurostat Harmonised Index of Consumer Prices (HICP) for Ireland, ex. tobacco. – A second inflation-linked bond was issued in 2019. This was also a private placement, for a total of €300m, maturing in 2045.

• Green Bonds

– Initial €3billion of 10-year issued in 2017 with a tap of €2billion in 2019. – Annual reports on allocation and impact in line with international best- practice.

Thank you