What a difference a decade makes ! Anthony Linehan Deputy Director in Funding and Debt Management National Treasury Management Agency
Then and now: 2010 2020 • €20bn to raise • €20bn raised of €20bn - €24bn range • Crisis (Banking crisis) • Crisis (Covid-19) • Economic slowdown • Economic slowdown – -10% to -20% (in GNI* terms) [forecast] – -22% v. 2007 peak (in GNI* terms) – Unemployment: ~28% (Covid-19 – Unemployment: 15.7% adjusted rate) [ CSO has urged caution on 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 30 25 EU/IMF EU/IMF OMT Programme Programme Exit Entry 20 ECB QE 15 10 Brexit ECB PEPP starts 5 0 Moodys Downgrade -5 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 10 year 2 year
10-year yields 2009 to 2010 2019 to 2020 10 0.8 9 0.6 8 7 0.4 6 0.2 5 4 0 3 -0.2 2 EU/IMF Programme 1 -0.4 Entry 0 -0.6 Jan-19 Mar-19 May-19 Jul-19 Sep-19 Nov-19 Jan-20 Mar-20 May-20 Jul-20 10 yr 10 yr
Then and now; issuance: 2010 2020 Weighted Average Cost 4.70% 0.27% 8.8 11.1 Weighted Average Maturity Issuance Amount (€ millions) 19,873 20,000 Interest cost (€ millions) 934 54
Then and now; debt: Stock of Irish Government Debt Interest payments 250 €9,000mn €bilions €8,000mn 200 €7,000mn €6,000mn 150 €5,000mn €4,000mn 100 €3,000mn €2,000mn 50 €1,000mn €0mn 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2010 2020f Interest N.B.: at these elevated debt stock levels, each 1pp added to the average interest rate is worth €2-2.5bn each year.
Debt maturity profile 2010 €m 20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 -
Debt maturity profile 2020
Ireland v. selected countries (10-yr spread) 2 0 -2 -4 -6 -8 -10 -12 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 400% 350% 300% Legacy of last crisis is on government balance sheet not 250% private sector 200% 150% 100% 50% 0% Public and Private debt (% of GNI*) Private debt (% of GNI*) Public debt (% of GNI*) 2003 2008 2013 2019 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 3 40 25 € trillion € billion 2.5 20 30 2 15 1.5 20 10 1 10 0.5 5 0 0 0 2015 2015 2015 2016 2016 2016 2017 2017 2017 2018 2018 2018 2019 2019 2019 2020 2010 2020f ECB cumulative purchases (PSPP, PEPP) Ireland (RHS) NTMA Issuance ECB net purchases of IGBs
ECB has become a major holder of Irish debt – likely c.25% by year-end 250 Billions € 200 150 100 50 0 2006 2008 2010 2012 2014 2016 2018 2020f 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
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