The True Cost of Our Borrowing

National Treasury Management Agency

Image via Wikipedia

The report that the issue was oversubscribed gives us a false impression of the cost of the borrowing.

Really what is happening is the country need 600 million euro quickly and is willing to pay over the odds for it. The government will pay it back in 6 months, its a no brainer for investors considering the poor returns available elsewhere. Investors know that Ireland wont default in 6 months so the Bonds( Treasury Bills) are good business for others but not for the taxpayer.

The real indicator is the 10 year Bonds,( i.e. what we have to pay in interest to borrow money over 10 years) it puts us just behind Greece. This suggests that the market sees us in a worse position over 10 years than 6 months.

The National Treasury Management Agency, which borrows money on behalf of the State, has sold €600m of Treasury Bills,according to RTE

The yields, or the cost of borrowing the money, fell compared with an auction two weeks ago when more debt was offered.

Treasury Bills, or T-Bills, are a way of securing short-term funding, and they must usually be re-paid within months rather than years. The NTMA sold €400m of T-Bills maturing next April and €200m maturing in February.

The offer was oversubscribed six times, indicating strong demand, and the interest rates that Ireland had to pay for the short-term debt were lower than they were two weeks ago. The average interest rate on the six-month bills was 1.978%, while it was 2.348% on the eight-month bills. In both cases, this was just under 0.5 points lower than in the last auction on August 12.

The sale comes a day after a rating agency downgrade of Ireland, which worried international markets. Yesterday Ireland’s long-term borrowing costs soared after the downgrade from Standard & Poor’s.

The yield on Irish 10-year bonds went above 5.4%, second only to Greece in the euro zone.

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About Senator Jimmy Harte

I am a Labour Party Senator based in Donegal North-East and a public representative for the last 16 years. I represented Letterkenny Town Council and Donegal County Council until 28th April 2011 when I was elected to the Senate I attended St Eunan's College in Letterkenny and UCD (Dublin) where I studied psychology to BA level. I also played soccer with UCD first team. I live in Letterkenny and own Harte Insurances which I set up at the age of 24. We have two offices, Letterkenny and Raphoe.
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