Accompanying the announcements of “final” estimates of rescuing the Irish banking system on Thursday last was the decision to abandon auctions of Irish State debt for the next three months, that is October, November and December 2010. The reason: we have enough cash to last us to “late June 2011” (according to Minister for Finance Brian Lenihan’s statement two days ago) and interest rates demanded at present are too high. According to Zerohedge citing Bloomberg “[Taoiseach Brian Cowen] said that his government decided to cancel bond auctions for the rest of the year because of “turbulence” in bond markets, and the state is already funded into next year. He made the comments in an interview with national broadcaster RTE.” “We are funded until next May,” Cowen said. “There has been such turbulence in the markets, since we don’t require those funds immediately why would we be going to get funds at rates such as 6.8 or 6.9 percent.””
The decision may have come as a shock to the bond markets whose thinking seems to have been along the lines of the National Treasury Management Agency (NTMA, State agency which manages the funding of the national debt) continuing to auction limited amounts of debt to keep in the game and to maintain confidence.
However, the announcements on Thursday seemingly haven’t affected NAMA which is right now seeking to place €2.5bn of euro commercial paper (Irish State guaranteed). There are some basic details of the programme on the NAMA website. NAMA needs the cash to pay back a “recoupable advance” of €250m to the State in October 2010 and to fund its working capital and provide advances to developers to maintain and complete projects – it is understood the demands on NAMA’s funding are considerable. NAMA is also due to announce details of its medium term funding arrangements imminently.
It is hard to see how NAMA can abandon its funding programme. And presumably it will attract the same prices as Irish State debt. So no need to go cold turkey on Irish State debt just yet.
NAMA Wine Lake 