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Irish Bonds for Paul Krugman

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G
genauer

The document discusses Ireland's bonds and interest rates from 2010-2012 following its request for IMF help in November 2010. It shows that Ireland's 5-year CDS spread peaked above 600 basis points prior to IMF assistance, then fell to pre-IMF levels as Ireland fulfilled IMF plans. Ireland's 10-year bond rates similarly peaked above 9% before the IMF request, then dropped to 6.7% as Ireland met IMF targets, regaining market access by late 2012 as planned.

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Irish Bonds for Paul Krugman Page 1 this overview 2 CDS history and how to interpret 3 10 - year bond rates 4 recent developments bottomline: the markets follow very closely the success of consolidation and reward rational behavior No other country than the USA has the luxury of the exorbitant privilege
Irish Bonds for Paul Krugman: 5 year CDS CDS spread of Ireland closes above 600 points Friday 11/26/2010 -> request for IMF help Sunday 11/28/2010 Greeks throw the big tantrum in August 2011 -> risk spike for all Europeans (DE: 112, UK: 96 points) Ireland fulfils the IMF plans 100.0 % -> risk premium goes down to pre IMF level (560 points) Ireland is on track to regain market access end of 2012, as planned
Irish Bonds for Paul Krugman: 10-year rates IMF decisions are mainly triggered by interest rates and not CDS spreads (of course both are highly correlated) 10-year rate of Ireland closes above 9%(900 points) Friday 11/26/2010 -> request for IMF help Sunday 11/28/2010 Ireland fulfils the IMF plans 100.0 % -> interest rate goes down to 6.7%, far below pre IMF level See next page for more recent data
Irish Bonds for Paul Krugman: 10-year rates Bond details: EURO interest rate (bonds ~ 10 year) Ireland ISIN: IE0034074488 20% maturity date: 4/18/2020 18% de de fr Germany France coupon: 4.5 % it at Austria 16% es be Belgium it Italy 14% pt es Spain Irish rates dropped pt Portugal 12% ie ie gr Ireland Greece after positive IMF reports gr 10% Portuguese rates drop with 8% each positive news 6% 4% Note: this is calculated from 2% prices paid for pre IMF 0% existing bonds, with 1/30/2011 3/1/2011 5/1/2011 6/1/2011 8/31/2011 3/31/2012 6/30/2012 9/30/2012 4/1/2011 7/1/2011 8/1/2011 10/31/2011 12/31/2010 8/30/2012 10/30/2012 11/30/2012 9/30/2011 11/30/2011 12/31/2011 1/30/2012 3/1/2012 4/30/2012 5/31/2012 7/31/2012 12/30/2012 coupons like above their actual interest * pt 5 years for data availability payments for new loans are at IMF / EU rates of 3.5 - 4 % since 7/22/2011 Present rate : 6.7%

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Irish Bonds for Paul Krugman

  • 1. Irish Bonds for Paul Krugman Page 1 this overview 2 CDS history and how to interpret 3 10 - year bond rates 4 recent developments bottomline: the markets follow very closely the success of consolidation and reward rational behavior No other country than the USA has the luxury of the exorbitant privilege
  • 2. Irish Bonds for Paul Krugman: 5 year CDS CDS spread of Ireland closes above 600 points Friday 11/26/2010 -> request for IMF help Sunday 11/28/2010 Greeks throw the big tantrum in August 2011 -> risk spike for all Europeans (DE: 112, UK: 96 points) Ireland fulfils the IMF plans 100.0 % -> risk premium goes down to pre IMF level (560 points) Ireland is on track to regain market access end of 2012, as planned
  • 3. Irish Bonds for Paul Krugman: 10-year rates IMF decisions are mainly triggered by interest rates and not CDS spreads (of course both are highly correlated) 10-year rate of Ireland closes above 9%(900 points) Friday 11/26/2010 -> request for IMF help Sunday 11/28/2010 Ireland fulfils the IMF plans 100.0 % -> interest rate goes down to 6.7%, far below pre IMF level See next page for more recent data
  • 4. Irish Bonds for Paul Krugman: 10-year rates Bond details: EURO interest rate (bonds ~ 10 year) Ireland ISIN: IE0034074488 20% maturity date: 4/18/2020 18% de de fr Germany France coupon: 4.5 % it at Austria 16% es be Belgium it Italy 14% pt es Spain Irish rates dropped pt Portugal 12% ie ie gr Ireland Greece after positive IMF reports gr 10% Portuguese rates drop with 8% each positive news 6% 4% Note: this is calculated from 2% prices paid for pre IMF 0% existing bonds, with 1/30/2011 3/1/2011 5/1/2011 6/1/2011 8/31/2011 3/31/2012 6/30/2012 9/30/2012 4/1/2011 7/1/2011 8/1/2011 10/31/2011 12/31/2010 8/30/2012 10/30/2012 11/30/2012 9/30/2011 11/30/2011 12/31/2011 1/30/2012 3/1/2012 4/30/2012 5/31/2012 7/31/2012 12/30/2012 coupons like above their actual interest * pt 5 years for data availability payments for new loans are at IMF / EU rates of 3.5 - 4 % since 7/22/2011 Present rate : 6.7%