Published September 24, 2010
Business Studies , Economics
Tags: bonds, debt, ecb, ntma
Last Tuesday, the Irish government borrowed another €1.5bn. You may have heard a lot about bonds in the news early this week. So what are bonds and why are they important to Ireland?
Bonds are used by the government to raise money. The Irish government needs to borrow about €20bn per annum in order to run the country i.e. our total expenditure exceeds our total income by €20,000m.
Each bond is usually sold for €100 and has a fixed rate of interest.
An example would be:
€100 4% April 2014
€100 is the price of the bond. The bond will pay 4% interest per year. This is a fixed rate. In April 2014, the bond “matures” i.e. the government repays the €100 to the investor who bought the bond.
The government is borrowing the €100 until April 2014 and pays 4% interest per year.
The reason why bonds were in the news this week is that Ireland now has to pay a higher interest rate to the people who buy our bonds because they view Ireland as more of a risk i.e. will we be able to pay the interest each year and the €100 in 2014?
This is the same as a bank would do when lending money to a risky customer i.e. charge them a higher interest rate.
Question: Why is Ireland now more of a risk than last year?
Give your reasons by commenting on this post.
Some of this week’s business news.
The downturn in global economic activity continues. This has been reflected in the performance of global stock markets so far in 2008.
October 2008 was the worst month for shares in modern history. Investors lost $5.7 trillion in October alone. The Irish market is down 63% in 2008, the UK market is down 45% and the US market is down 33.9%. Global investors have lost $16.22 trillion so far in 2008. This is a classic example of a bear market.
The ECB and the Bank of England have responded to the financial crisis by cutting interest rates by 0.5% and 1.5% respectively. Further cuts are expected in the coming months. What effects will these cuts have on the economy?
What was originally a crisis for financial institutions has now spread to the consumer. Irish car sales have fallen dramatically. They are down 55% on 2007 and this has lead to 2,000 people losing their jobs in the Irish motor industry.
Irish unemployment is likely to reach 320,000 in 2009. An average of 725 people are now being made redundant in Ireland every week. The days of full employment are over.
Dunnes Stores stay silent on takeover rumours.
Bank of Ireland keep losing their customers data.
Finally, another website worth bookmarking. Yahoo Answers is a useful site if you can’t find the answer or solution to a question. There are several categories on the site and they have a Business section as well.
If you have know of any other useful websites, then let us know by posting a comment or you can email them to mrhannon [at] geralds [dot] ie
Published March 26, 2008
Irish banks borrowed €39.4bn from the European Central Bank in 2007. This is 45% higher than the total amount borrowed in 2006.
The ECB regularly lends money to financial institutions in order to improve liquidity. Some Irish financial institutions use the ECB facility on a regular basis to finance part of their balance sheets, using their residential mortgage assets as collateral. All banks regard the facility as a continuous source of funding.
Borrowing by Irish banks from the ECB in 2007:
- EBS – €2.3bn
- Irish Life & Permanent – €5.3bn
- Bank of Ireland – not disclosed
- AIB and Anglo Irish Bank – no borrowing