10-year yield at 3.49%

Here is a snapshot of Irish government bond yields as calculated by this website (go to Live Quotes ⇒ Bonds ⇒ World Government Bonds and select Ireland).

Really?

Yield Curve

This site gives a snapshot of Irish government bond yields at different maturities.

A Year of Bond Yields

This time last year doubts about Spain were a factor in driving up sovereign bond years for the ‘peripheral’ Eurozone countries.  The Irish nine-year government yield as calculated by Bloomberg rose from just over 8% up to near 10% in a couple of days.

Since then, for one reason or another, the path of the yield has been consistently down.   By dropping below 4.7% in the past few days the yield is at levels not seen since the summer of 2010 and well below the 7% levels that emerged in the weeks leading up to Ireland’s entry into an EU/IMF rescue programme in November 2010. 

Here is the range of Irish yields along the yield curve provided by Bloomberg:

• 1-year: 1.28%
• 3-year: 1.59%
• 5-year: 3.44%
• 7-year: 4.02%
• 9-year: 4.67%

GDP/GNP Revisions

As pointed out in the previous post Irish national income statistics are hugely influenced by the MNC presence here.  The figures themselves are also subject to frequent revision as new information becomes available and is incorporated into the statistics.  In the fourth paragraph of the recent National Income and Expenditure Accounts the CSO said the following:

The estimates for 2011 are based upon indicators for the different aggregates and must be regarded as tentative. The provisional nature of the estimates for 2009 and 2010 must also be borne in mind. In particular, the estimates for the year 2010 in the present report must be regarded as preliminary. Many of the inquiries upon which the basic compilations rest are incomplete and to the extent that figures given for 2008 and 2009 are still partly subject to revision, projections for the year 2010 are also affected. While no guarantee can be given that published figures will remain unaltered as inquiries proceed and as sources and methods are reviewed, it is expected that any changes made in future in relation to years earlier than 2007 will have a relatively insignificant effect on the year-to-year trend in these data.

The first estimate we will use is from the Q4 2011 QNAs released back in March and the second is from the Q2 2012 QNAs released yesterday.

The statistical revisions for GDP are shown below.

And is what has happen to the GNP estimates.

The upwards revisions make absolutely no difference to the economic reality faced by people but it does highlight the difficulties of measuring economic activity and further downplays the import that should be placed on the 4.3% rise in GNP reported yesterday.  As well as not reflecting the domestic economy it could be revised away in subsequent data releases.

Bond Yields

The pattern of Irish government bond yields in the past few weeks has been remarkable.  Here the a six-month chart of the nine-year yield as calculated by Bloomberg.

This seems to be only term in the set provided by Bloomberg that still produces the interactive charts.  Anyway as we pointed out last week the drops have been right along the yield curve.

Since last week the falls have continued.  At the time the nine-year was at 5.3% and as can be seen above the continued decline has seen it drop below 5%.  This is all in the face of public finance data, national accounts data, employment data, retail sales data that fails to impress.  As before, this drop in bond yields should be considered a positive but one that, for the moment at least, should be viewed as transitory rather than permanent.

Bond yields, debt and deficits

It has been an incredible week for Irish government bond yields.  This table has the indicative yield as calculated by Bloomberg for a representative set of maturities on the last day of August and as of this morning.

Term	Aug 31	Current	Change
1-year	1.79%	1.36%	-43bp
3-year	3.35%	2.05%	-130bp
5-year	5.19%	3.82%	-137bp
7-year	5.68%	4.62%	-106bp
9-year	5.94%	5.27%	-67bp

The largest proportionate drop has been in three-year yield but the drops have been right along the yield curve.  There has been no improvements in the Irish economy in the past few weeks that can explain these moves.

The announcement of Outright Monetary Transactions (OMTs) by Mario Draghi is important and at the same timeframe used above the Spanish five-year yield as calculated by Bloomberg has moved from 5.50% to 4.41%.  Clearly the moves by the ECB can explain a large part of the yield decrease but the drop for Ireland has been larger.

It is likely based on expectations of the “deal on bank debt” though this has been in the offing since the June 29th EU Council Meeting.  This week’s IMF Article IV Report on Ireland shows what could happen to Ireland’s debt ratio if this deal delivers at the top-end of expectations.

A debt ratio of around 80% of GDP by 2020 would be remarkable.  Of course, this is based on a benign growth scenario and a deal with the ESM for the viable banks (the ESM purchasing them for €24 billion) that is unlikely.  In the absence of the debt improvement agreement and underperformance of growth the following could happen.

The stagnant growth scenario sees the debt at 130% of GDP as early as 2017 and continuing the rise.  This is not a sustainable position.

Current Irish bond yields are more reflective of the “baseline growth and ESM equity and refinancing of promissory note” scenario of the first graph than the “stagnant growth scenario” of the second.

The likely outcome will be between these.  A bank debt deal that doesn’t meet expectations or lethargic growth will bring the second graph into the focus of prospective buyers of Irish government bonds.  The current run of these bonds is a positive but the yields can rise much faster than they fall.

Also, as highlighted by yesterday’s Fiscal Advisory Council Report the biggest threat to debt sustainability is the continuing deficit.  While the debt deal will affect the level of Irish public debt the deficit will determine the trajectory.

The FAC are pretty explicit that the risks are to the downside with larger deficits more likely than lower deficits.  The current plan as outlined in last April’s Stability Programme Update are for the deficit to just edge below 3% of GDP by 2015 (2.8%).   The FAC recommend a faster adjustment process which would bring the deficit down quicker, add to the likelihood that the public debt ratio will stabilise and provide buffers against growth underperformance.

Last week, updated National Income and Expenditure data from the CSO and some revisions from the Department of Finance showed that the 2011 ‘underlying’ General Government Deficit (i.e. excluding bank payments) was €14.3 billion or 9.0% of GDP.  In 2010 the ‘underlying’ deficit was €16.7 billion or 10.7% of GDP and in 2009 it was €18.8 billion or 11.7% of GDP.

[This measure of the ‘underlying’ deficit excludes bank recapitalisation payments but does not exclude banking-related revenues such as the Central Bank surplus, bank guarantee fees, dividends and other receipts.]

Since the ‘underlying’ deficit peaked in 2009, the nominal improvement was €2.1 billion in 2010 accelerating to €2.4 billion in 2011 and in terms of GDP the improvements have been one percentage point and 1.7 percentage points respectively.

For 2012, it looks like the rate of improvement will slow although it will be this time next year until that can be ultimately confirmed.  Most projections are for a deficit this year of around €13 billion or 8.3% of GDP and one of €12 billion or 7.5% of GDP in 2013 (though this is influenced by the of the ‘interest holiday’ on the promissory notes).

After seeing the deficit fall to 9.0% of GDP in 2009, the current plan is that it will fall by justa further 1.5 percentage points over the next two years to 7.5% of GDP.  This will add €25 billion to our borrowings.  Even by sticking to the terms of the Excessive Deficit Procedure there will still be a deficit of €5 billion in 2015.

The banking disaster beginning from 2008 has added about €45 billion to the general government debt.  The ‘underlying’ deficits over the same period have totalled around €63 billion.  Another €38 billion of deficits are expected to be accumulated over the next four years.  It is possible that the table of bond yields shown above won’t always look as positive.

Bond Prices Rise

Here is a screen-capture of yesterday’s Daily Outstanding Bonds Report from the NTMA.

And here is the equivalent from today’s report.

The price of all Irish government bonds rose today and the associated yields to maturity fell accordingly.  The biggest change seems to have been in the February 2015 bond which rose in price from €104.87 to €106.19 and is now yielding 1.86%.  This is the only inversion, albeit minor, in the yield curve as the January 2014 bond is yielding 1.89%.

On the 26th of July, the NTMA re-launched Ireland’s government bond programme.  Among the steps taken that day a new October 2017 bond was issued.  This had a coupon of 5.5% and on the day the bond sold for €98.27 per €100 unit giving a yield of 5.9%.  As can be seen above the bond is now trading at €106.88 and purchasers at that price are getting a yield of less than 4%. The price of the bond has risen nearly 9% in seven weeks.

Changes along the yield curve

The following image are screengrabs from Bloomberg for the yield on Irish government bonds over the past three months.  The top two are the 8-year and 5-year yields, while those across the bottom are the 3-year, 2-year and 1-year yields.  Click the image to enlarge.

The actual bonds on which these indicative yields are derived can be seen in the NTMA’s Daily Outstanding Bonds Report.

There are two things worth noting.  First, is the continued upward-sloping yield curve for Irish government bonds.  The yields as calculated by Bloomberg go from 1.59% over one year to 5.90% over eight years.

Second, is the differing performance of the bonds over the past three months.  The longer term yields in the top row show a big shift in the aftermath of the EU summit of  at the end of June but show little change since then.  The eight-year has slowly edged below six percent but the five-year is largely where it was in the days after the summit.

On the other hand the shorter term yields of three years and under have all declined steadily over the past three months.  The three-year and two-year were declining in advance of the summit, experienced a small drop after it and have continued downward since.

Over the past three months the three-year yield (which is well outside the window of the current EU/IMF funding programme has gone from over seven percent to just under three and a half percent.  The two-year was also above seven percent but in just three months has now dropped to just two and a half percent.  The clear view is that the D-day bond due to mature in January 2014, which at one stage represented a funding cliff of around €12 billion, will be repaid. 

This January 2014 bond is now yielding around 2.2% is now trading at a price of around €102.40 per €100 unit (coupon 4.0%).  Last July, this bond briefly fell to as low as €65 per €100 unit.  That is a rise of nearly 60%.

The one-year yield has also declined recently but that is within the timeframe of the EU/IMF funding.   It might also be a factor that trading volumes over this period may be low but the NTMA report does show that there are trades occurring at these yields.

Irish government bond yields

Bloomberg calculate a number of indicative yields for government bonds at different maturities.  For Ireland they currently provide 1-year, 2-year, 3-year, 5-year and 8-year yields.  The yield curve is upward sloping with the following yields (as of 15:45)

• 1 year: 1.91%
• 2 year: 2.74%
• 3 year: 3.73%
• 5 year: 5.38%
• 8 year: 6.04%

Over the past month or so there has been a contrast in performance between those at the shorter end of the range (less than three years) and longer maturities.  This chart from Bloomberg compares the performance of the 2-year and 8-year yield relative to their positions 3 months ago.

Both series dropped in the aftermath of the EU leaders summit of the 29th of June but since them the 8-year yield has been largely unchanged while the two year yield has continued to drop.  On the third of July the 8-year yield finished at 6.15%, only 11 basis points above where it is now.  On the same day the 2-year yield finished at 5.01% and has since fallen by 227 basis points. 

A look at the 3-year yield suggests that rates at back to somewhere near what could be considered “pre-crisis” levels (though there is an entirely different interest rate environment now).

The three-year yield is based on a bond that matures in February 2015 and this is well outside the window of the EU/IMF funding programme.  Here are the three-year yields for most eurozone countries.

• Greece 124.4%
• Portugal 6.70%
• Spain 4.97%
• Italy 4.14%
• Ireland 3.73%
•  
• Belgium 0.69%
• France 0.26%
• Austria 0.23%
• Netherlands 0.11%
• Finland 0.08%
•  
• Germany 0.02%
•  
• Cyprus
• Estonia
• Luxembourg
• Malta
• Slovakia
• Slovenia

Ireland is firmly rooted in the first group but now has lower yields than both Spain and Italy, neither of which is in a bailout.  The differential between Ireland and Italy was covered in this recent piece on Bloomberg.

Irish Yields Fall Below Italy’s Ignoring Deficit: Euro Credit

By Gregory Viscusi - Jul 25, 2012

Ireland has been functioning thanks to rescue loans since 2010. The government has nationalized five banks and the country’s budget deficit will exceed 8 percent of output this year, European Union forecasts show.

In Italy, the budget shortfall will be 2 percent, less than the EU ceiling of 3 percent of the gross domestic product, and it hasn’t had to bail out its banks. Even with this economic backdrop, bond markets show investors have more confidence in Ireland than Italy.

Ireland has borrowed at preferential rates from its EU partners for the past 20 months, and market prices don’t reflect what it would pay if, like Italy, it had to fund itself in markets, said Guillaume Menuet, head of western European economic research at Citigroup Inc. in London.

Irish rates have fallen below those of Italy across much of the yield curve for the first time since 2009.

“Italy is getting the full brunt of contagion from Spain, and the markets are all playing the game of ‘who’s next?’,” said Cyril Regnat, a fixed-income strategist at Natixis in Paris. “Ireland has benefited from a positive news flow recently, but you still have to consider that markets are being a bit abnormal.”

There are lots of things that have been “abnormal” in the past few years.

A Year of Bond Yields

It is now a year since the Irish government bond 9-year yield as calculated by Bloomberg peaked at 15.5%.  As of today it is just under 6.3%.

The peak last July was the result of uncertainty in the run-up to the July 21st EU Summit.  There were strong rumours that Private Sector Involvement (PSI) and bond writedowns would be a feature of all bailout programmes.  Greek and Portuguese yields shot up similarly.

As it was, PSI was limited to Greece while Ireland and Portugal were ‘rewarded' with significant reductions in the interest rates on their EU loans.  Irish yields dropped precipitously in the weeks after the summit, in part driven by the decision to limit PSI to Greece and also because of purchases by the covered banks who used some of the recapitalisation money they received last summer to buy Irish government bonds.

This has proven to be a good investment for the banks.  The most recent Money and Banking Statistics from the Central Bank show that the covered banks holdings of Irish government bond are worth €16.3 billion.

The yields fell to around 8.5% by early September and stayed around there until Spanish  borrowing costs exploded in late November.  The Irish 9-year yield briefly threatened to return to the 10% mark, but the jump in late November was followed by a steady decline to 7% over the next two months.  This fall began a couple of weeks before the ECB launched its Long Term Refinancing Operations (LTRO) that provided close to €1 trillion to eurozone banks.

For the next three months the yield hardly budged from 7% before a step-up to 7.5% in mid-May following further Spanish uncertainty.  The announcement at EU summit on the 29th June last of possible direct bank recapitalisation by the ESM and the mention of some retrospective action in the case of Ireland saw the yield drop to 6.3% where it has been since.

One thing is clear over the year: changes in Irish government bonds yields have very little to do with domestic developments.  All the big changes over the past year have been driven by external or official events.  Economic data in Ireland has largely been moribund over the period with no discernible upward or downward pattern.

Uncertainty was of the biggest determinants of the yields.  Uncertainty about the size of the hole in the banks pushed Ireland out of bond markets and into an EU/IMF rescue programme.  Uncertainty about the possibility of PSI pushed the yields nearly 16% last July.

There is still a good deal of uncertainty: will the budget deficit continue to fall?  what do the recent EU statements mean for Ireland?  where will the growth come from?  We must wait to see what the answers will bring.  It will take some more ‘good news’ to bring the yields to 5% and lower which makes sustainable borrowing costs more likely.

Five-year yields

As expected last night’s eurogroup meeting of eurozone finance Ministers didn’t deliver a whole lot in public.   It wasn’t expected to.  All the statement really shows is the timetable to implement some of the decisions taken at the EU summit on June 29th. 

In the context of EU decision-making the proposed timetable for an ECB-centred eurozone banking supervisory structure is lightning fast.  It remains to be seen what can be delivered by the proposed end-2012 deadline.

Here are some five-year government bond yields as calculated by Bloomberg (as of 10:45)

• Greece 61.19%
• Portugal 9.77%
• Spain 6.13%
• Ireland 5.46%
• Italy 5.42%
• Belgium 1.58%
• France 1.02%
• Austria 0.86%
• Netherlands 0.86%
• Finland 0.80%
• Germany 0.35%
• Cyprus
• Estonia
• Luxembourg
• Malta
• Slovakia
• Slovenia

Bond Yields

After three months with barely a budge the Irish government 9-year bond yield as calculated by Bloomberg jumped back over 7% in the last few days.

The yield did rise as high as 7.7% earlier but is now back to around the 7.4% level it began the day at.  There have be no domestic changes to explain the move in recent days and the driver is uncertainty in Greece.  On this day last year the equivalent yield was 11.2%.

Greek 10-year bond yield

Here is the Greek 10-year bond yield as calculated by Bloomberg for the past month.

The impact of the ‘default’ finalised last week is very evident.  But even with that the yield remains at 18%.  The Bloomberg nine-year equivalent for Ireland is at 6.9%.

The recent bond swap

A recent look through Bank of Ireland’s preliminary report for 2011 revealed the following nugget of information on page 64:

On 25 January 2012, the National Treasury Management Agency offered bondholders the opportunity to exchange their existing holdings in respect of the 4% Treasury bond 2014 for a new 4.5% Treasury bond maturing in February 2015. The Group converted €1.3 billion of its Treasury bond 2014  into the new 4.5% Treasury bond 2015.

The NTMA announced that €3.53 billion of the Janurary 2014 bond was switched to the February 2015 bond.  Bank of Ireland accounted for 37% of the total amount swapped.

At the 31st of December  2011 BOI held €5,149 million of Irish government bonds on its balance sheet.  This is 6.0% of the total outstanding government bonds of €85,317 million.

Bloomberg yield goes below 7%

Apropos of nothing in particular the Irish government bond 9-year yield as calculated by Bloomberg finished the day at 6.93%.  This is the first time it has finished below 7% since the 1st of November 2010.

Of course, actual yields on trades performed through the Irish Stock Exchange have been below 7% for more than a week.

All yields now under 7%

Here is a snapshot from yesterday Daily Outstanding Bonds Report from the NTMA.

At there closing prices in trades put through the Irish Stock Exchange yesterday all Irish government bonds were yielding less than 7%.

Fitch keeps Ireland at BBB+

For the second time in a fortnight a ratings review has seen Irish government bonds hold their rating at BBB+.  According to Fitch:

BBB ratings indicate that expectations of credit risk are currently low. The capacity for payment of financial commitments is considered adequate but adverse business or economic conditions are more likely to impair this capacity.

The Fitch statement on the ratings decision begins

The affirmation of Ireland's sovereign ratings primarily reflects two factors:

- Whilst Fitch has reduced the score assigned to capture financing flexibility in its assessment of the credit profile of those eurozone sovereigns that have large fiscal financing needs and significant financial/economic imbalances, in Ireland's case its 'BBB+'/'F2' rating had already incorporated this lack of financing flexibility as demonstrated by it losing market access in 2010 .

- Ireland's progress with fiscal and structural adjustment under the IMF-EU programme. Notwithstanding the intensification of the eurozone crisis over the last months, on-track fiscal performance and the improvement of macroeconomic and financial fundamentals led to the decline of interconnected fiscal sustainability and financial stability risks and all programme targets have been met.

Not a lot to generate much reaction here though I must have missed “the improvement of macroeconomic fundamentals”.  Economic growth? Inflation? Unemployment?  There has been some stability but hardly enough to warrant description as an improvement.  The full statement is below the fold.

The strong political support behind the multi-year fiscal consolidation plan and the broader public acceptance of its necessity are key supports to the adjustment process. According to preliminary data, the 2011 deficit-to-GDP ratio was better than the 10.6% target set in the IMF-EU programme with current official estimates suggesting the deficit came in at just under 10%. Fitch believes the 2012 target of 8.5% is attainable, not least due to the lowering of the interest rate on the EU portion (a total of EUR 40.2bn by 2013) of the official loans.

Export-driven recovery characterised the first half of 2011. While domestic demand is still contracting, the flexibility of the Irish economy, in particular the cut in nominal wages and prices resulting in a sharp improvement of competitiveness, helped to take advantage of strong external demand in early 2011.

Overall, financial stability concerns have receded following the PCAR exercise in March 2011. Market confidence has increased in Irish financial institutions, as evidenced by deposit stabilisation in H211 following previous sharp declines, successful raising of private capital by the Bank of Ireland and wholesale funding transactions. Following the public recapitalisation of the sector by EUR63bn, the capital adequacy ratios of the three largest banks are among the highest in the eurozone, providing a sizeable buffer for the expected losses. However, downside risks remain - non-performing loans are still rising, property prices have yet to reach a bottom and low mortgage foreclosure rates suggest further adjustment lies ahead.

Nevertheless, significant external headwinds persist. The Negative Outlook reflects the exposure to the economic downturn of major European trading partners, a key concern given the export-oriented growth model of the Irish economy, and the adverse impact of heightened eurozone financial tension on Irish financing conditions. In particular, the timing and interest rate level of the sovereign's return to market financing remains uncertain, although the recent bond switch aiming at smoothing the maturities between 2014 and 2015 is an encouraging sign.

Contagion from further intensification of the eurozone crisis or a material slippage of the fiscal consolidation path, either due to looser fiscal policy stance or a significant deterioration of the growth trajectory, could lead to a negative rating action. On the contrary, the successful implementation of the IMF/EU programme, a return to sustainable economic growth, and the moderation of the eurozone crisis would stabilise the rating Outlook.

The legislative process of the adoption of the fiscal compact represents a new and country-specific risk for Ireland. The Irish authorities may be required to hold a referendum on the fiscal compact. In light of the initial Irish 'No' to the EU Treaty in the June 2008 referendum, Fitch finds the probability of another rejection non-negligible. The uncertainty that would be created by another such 'No' vote would put further pressure on the rating.

Yields continue to fall

The eight-week downward run in Irish government bond yields continues.  Here are the indicative yields as calculated by Bloomberg and their close yesterday.

• Two-year Irish government bond yield: 5.64%
• Five-year Irish government bond yield: 6.17%
• Nine-year Irish government bond yield: 7.45%

The five-year yield as calculated by Bloomberg is approaching what could be considered sustainable.  In fact both Italy and Spain have been forced to issue bonds at similar rates in the period around Christmas.  Here is an image of the eight-week fall.

Before the current crisis the five-year yield on Irish government bonds was generally between 3.5% and 4.0%.  Last July this yield was over 17% and getting back to anything like normality before the end of the EU/IMF programme seemed like a forlorn hope. 

With the debt mountain we have now accumulated a return to such levels is unlikely.  At best we could probably hope to see yields of 4.5% to 5.0%.

Here are the actual closing prices and yields of outstanding government bonds for trades recorded with the Irish Stock Exchange yesterday.

Getting back to markets

Just a few days after John Corrigan of the NTMA said this:

“Our plan would be to try and return to the Treasury Bill market, which is for debt instruments with less than three month maturity, to try and return to that market by mid-year which would represent the first signs of normalisation, and as regards the longer-term market towards the end of 2012 early 2013 but again it is subject to external conditions improving.”

It might be worth considering this:

Meanwhile, Greece saw its borrowing rates ease marginally in a bill auction on Tuesday.

The public debt agency said it raised €1.625 billion ($2.06 billion) in a sale of 13-week treasury bills, an interest rate of 4.64 per cent, compared with 4.68 per cent in the last such auction in December.

Demand for the bills was 2.90 times the amount on offer, roughly the same as last month.

Unable to issue long-term debt due to untenably high borrowing costs, it maintains a market presence through regular treasury bill auctions.

A country whose ten-year yield is nearly 35%, whose two-year yield is 164% and is forecast to default in exactly nine weeks was out in the markets today and raised over €1.5 billion of three-month funds at an interest rate of 5%, with demand of close to €5 billion.

While getting back to short-term markets is undoubtedly an important first step, it is a small step and is one that a country with a nine-year yield of 7.5% and a two-year yield of 5.7% should have little problem in achieving.    Irish has an outstanding bond maturing in seven weeks that is yielding 2.12%.

Today saw a steepish decline in the nine-year yield on Irish government bonds as calculated by Bloomberg.

At 7.47% this is the lowest the reported yield has been since the 4th of November 2010.

S&P keeps Ireland at BBB+

For the second time since August, S&P has reaffirmed its BBB+ rating for Irish government bonds.  BBB+ is two grades above junk status and is defined as “adequate capacity to meet financial commitments, but more subject to adverse economic conditions”.  In August, though, the outlook was Stable, now it is Negative.  That implies there is a one-in-three chance of a downgrade over the next two years.

Italy, Portugal and Spain all had two-notch downgrades.  Italy has been moved to BBB+ and now stands alongside Ireland.  Portugal, which previously had a BBB- lowest investment grade rating, now has a junk status grade of BB.  Spain began at AA- and is now at A.  As with Ireland the outlook on all of these is Negative.  The last of the PIIGS, Greece, did not form part of the current review and remains at the low-junk CC grade and a disorderly default is a growing possibility.

A lot of the current S&P statement explaining the decision on Ireland deals with the general eurozone environment but there are some interesting country-specific elements.   Two of these are:

1.  All other things being equal, we view the government's fiscal consolidation plan as sufficient to achieve a general government deficit of around 3% of GDP in 2015.

2.  We expect the general government net debt burden to fall to about 103% of GDP in 2015, having peaked at 109% in 2013. Our net debt estimates include the impact of the government's €64 billion (40% of GDP) in banking sector recapitalizations during 2008-2011 and €29 billion (18% of GDP) in debt issued by the National Asset Management Agency (NAMA) as of end-2011.

In August they were forecasting that their measure of net debt would peak at 110% of GDP in 2013.  That has now being reduced to 109% of GDP (possibly as a result of the double-counting error in the Department of Finance.)  The 103% net debt/GDP for 2015 is unchanged.  On the general eurozone response to the crisis they state:

1. In our opinion, the political agreement [the fiscal compact of December 9th] does not supply sufficient additional resources or operational flexibility to bolster European rescue operations, or extend enough support for those eurozone sovereigns subjected to heightened market pressures.

2. [.] we believe that a reform process based on a pillar of fiscal austerity alone risks becoming self-defeating, as domestic demand falls in line with consumers' rising concerns about job security and disposable incomes, eroding national tax revenues.

The full text of the S&P statement is below the fold.

LONDON (Standard & Poor's) Jan. 13, 2012--Standard & Poor's Ratings Services today affirmed the 'BBB+' long-term and 'A-2' short-term ratings on the Republic of Ireland. At the same time, we removed the long-term rating from CreditWatch with negative implications, where it was placed on Dec. 5, 2011. The outlook on the long-term ratings is negative.

Our transfer and convertibility (T&C) assessment for Ireland, as for all European Economic and Monetary Union (eurozone) members, is 'AAA', reflecting our view that the likelihood of the European Central Bank restricting nonsovereign access to foreign currency needed for debt service is extremely low. This reflects the full and open access to foreign currency that holders of euro currently enjoy and which we expect to remain the case in the foreseeable future.

The outcomes from the EU summit on Dec. 9, 2011, and subsequent statements from policymakers lead us to believe that the agreement reached has not produced a breakthrough of sufficient size and scope to fully address the eurozone's financial problems. In our opinion, the political agreement does not supply sufficient additional resources or operational flexibility to bolster European rescue operations, or extend enough support for those eurozone sovereigns subjected to heightened market pressures. 

We also believe that the agreement is predicated on only a partial recognition of the source of the crisis: that the current financial turmoil stems primarily from fiscal profligacy at the periphery of the eurozone. In our view, however, the financial problems facing the eurozone are as much a consequence of rising external imbalances and divergences in competitiveness between the eurozone's core and the so-called "periphery." As such, we believe that a reform process based on a pillar of fiscal austerity alone risks becoming self-defeating, as domestic demand falls in line with consumers' rising concerns about job security and disposable incomes, eroding national tax revenues. 

However, we have not adjusted the political score of the Republic of Ireland down. This is a reflection of our view that the Irish government's response to the significant deterioration in its public finances and the recent crisis in the Irish financial sector has been proactive and substantive. This offsets our view that the effectiveness, stability, and predictability of European policymaking and political institutions (with which Ireland is closely integrated) have not been strengthened so as to match the severity of the broadening and deepening financial crisis in the eurozone.

Excluding government-funded banking sector recapitalization payments, the authorities have adjusted the budget by almost €21 billion (13% of estimated 2012 GDP) since 2008 and plan additional fiscal savings of some €12.4 billion (7.8% of GDP) for 2012-2015. All other things being equal, we view the government's fiscal consolidation plan as sufficient to achieve a general government deficit of around 3% of GDP in 2015. In our view, there is currently a strong political consensus behind the fiscal consolidation program and policy implementation so far has been extremely strong. In the face of a weaker-than-expected outlook for economic growth, additional measures (€0.2 billion, 0.1% of GDP) have been introduced to meet the government's targets.

We expect the general government net debt burden to fall to about 103% of GDP in 2015, having peaked at 109% in 2013. Our net debt estimates include the impact of the government's €64 billion (40% of GDP) in banking sector recapitalizations during 2008-2011 and €29 billion (18% of GDP) in debt issued by the National Asset Management Agency (NAMA) as of end-2011. NAMA's purpose is to acquire, hold, and dispose of land and property; it has acquired and is now working out eligible assets from participating financial institutions. Should NAMA asset disposals progress more rapidly than our current assumption (10% of GDP over 2013-2015), the government's net debt burden could improve at a faster pace.

In our view, Ireland has a flexible and very open economy. This is illustrated by the 25% depreciation in the trade-weighted exchange rate between May 2008 and October 2011 (latest data) and by goods and services exports estimated at about 113% of GDP in 2012. Partly as a result of these factors, as well as the noncyclical nature of a substantial part of Irish exports, net export growth has contributed positively to the muted Irish economic recovery in 2011. However, in our view this also leaves the Irish economy and, ultimately, the Irish government's fiscal consolidation program, susceptible to worsening external economic conditions. This is reflected in our downside hypothetical scenario, which contemplates real GDP per capita economic growth, general government deficits, and general government net debt averaging 0.9%, 6.6%, and 114% of GDP, respectively, over the 2012-2015 period, compared with our base-case scenario of 1.7%, 6.1%, and 107%.

We have lowered our assessment of Ireland's external score. On Dec. 5, 2011, we said that this score was unlikely to change as our concerns raised with regard to a sudden stop in interbank funding had already been realized in Ireland. However, the Irish government and Irish financial institutions have not had access to the capital markets for unsecured long-term funding since early 2010. Our assessment of the sovereign's external risks has been updated to reflect this.