Bonds in Plain English

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.


26 Responses to “Bonds in Plain English”

  1. 1 Jacob S.!!!!!!:) September 29, 2010 at 4:15 pm

    I think Ireland is now more of a risk because Ireland’s government has borrowed more money and because of Brian Cowen’s speech.

  2. 2 Cian Ruane September 29, 2010 at 5:17 pm

    Ireland is more of a risk because it is one of the PIGS of Europe and is folowing in Greace’s footsteps.

  3. 3 Karl Benson September 29, 2010 at 8:53 pm

    it is at more rick because we are in so much deth with other countries

  4. 4 Ammar Janjua September 29, 2010 at 8:54 pm

    Ireland is now more of a risk compared to last year because
    1)it is one of the PIGS of Europe and
    2)because of Brian Cowen’s “hungover” speech, it leads many banks who are lending money to Ireland to believe that thhe country is not in the hands of a more able leader.

    This means that Ireland pays a higher interest rate compared to most other countries in Europe.

  5. 5 Christian O September 29, 2010 at 8:59 pm

    I think Ireland is more of a risk because we spent too much money on little things. Which has been cheaper for other countries, not very good negotiations by our government. We have had our chances by selling oil but didn’t take them.

  6. 6 John Dolan September 29, 2010 at 9:46 pm

    Ireland is more of a risk now, as appose to last year because the amount of money being put into Anglo seems to be going up and up. Its like a bucket with no bottom. God knows what the final cost will be. Also Buffo’s ‘drunken’ interview brought up interest rates on Irish bonds. So much for lead by example!

  7. 7 ronan R September 30, 2010 at 8:12 pm

    Ireland is a risk to give money to because of the 34billion going into anglo which isnt even Irelands biggest bank.Ireland gets big interest rates because were a PIGS country and Brians clowns idiotic interveiw.Ireland will always be risky to give money to as long as fianna failure are in control.MAJOR FAIL!

  8. 8 Shane Mc Cormick October 1, 2010 at 10:22 pm

    29.3 BILLION! Not million, BILLION!The government is pumping so much into a dead bank!It’s like giving mouth to mouth resusitation to a 2 day old corpse!Think what you could do with that, build hospitals, gyms, schools(well…….)In fairness why would anyone lend us money, would you?
    You might think I’m exaggerating(and you probably are) but our generation will pay for this big time!
    And Ronan………..EPIC FAIL!!!!!!

  9. 9 Seán Tobin October 3, 2010 at 1:08 pm

    Thanks alot Anglo!The countrys in enough dept and you need €29.3 BILLION,sure whats the difference between few million and a few billion!?!

  10. 10 Peter Minogue October 5, 2010 at 5:40 pm

    Ireland is much more of a risk now than it ever was,mainly because were one of the PIGS of europe and also because of Brian Cowens ‘drunken speech’as if our interest won’t go any higher already!!and as for the money being wasted to anglo,we should have used this for so many other things rather than wasting it on a bank.Its the governments problem and the tax payer will end up paying for their mistake for years to come!!

  11. 11 Conor Mc Donnell October 5, 2010 at 6:37 pm

    Ireland is more of a risk to invest in than before because:
    -it is unlikely we will ever pay back all of our debt,(and if we do it’ll be in a lond,long time, because right now we’re losing money a lot faster than we are making it).
    -we’re one of the PIGS of Europe and its possible we will be the one with the worst economy (even before Greece).
    -spending a possible €34 billion on saving a bank which isn’t even Ireland’s biggest is obviously a mistake.
    -our mounting national debt (nearly €90 billion, and for a relatively small country).
    -of course Brian Cowen’s drunken speech will scare away any of the remaining possible investers, (if there are any!).

  12. 12 Michael Mc Donald October 5, 2010 at 8:47 pm

    Our country is in enough debt and thanks to Anglo and a drunk Taoiseach that debt will just pile up.

  13. 13 Michael Loftus :) October 5, 2010 at 9:26 pm

    i think ireland NEEDS a change in government to give people the idea tht things are better then they actually are so they will spend more money creating jobs.
    JOBS=TAX revenue= not borowing lots of money= getting us out of this SUPER BIG MESS

  14. 14 Dylan Ralph October 6, 2010 at 1:30 pm

    I think ireland is more of a risk than last year because of all the money that we are pumping into Anglo and AIB. Brian Cowens hangover speech definately didnt help. Also because we are one of the PIGS of Europe other countries will not lend any money to us and because the interest on our bonds is so high we are not making as much money as the government thought we would. SMART!!!!!!!

  15. 15 Aidan Conway October 6, 2010 at 5:15 pm

    i think ireland is more of a risk than last year because we waste the money we have and brians hangover speech !!!

  16. 16 Tiernan October 6, 2010 at 6:53 pm

    Ireland is at risk because

    1) Ireland is borrowing too much Money which we’ll probably “never” be able to pay back
    2)We’re rising dangerous close to becoming as bad as Greece( 6.98% and rising)
    3)We’re one of the PIGS of Europe
    4) Anglo is costing us too much money
    5) Brian Cowen’s hungover speech

  17. 17 David G October 6, 2010 at 7:55 pm

    The main reason Ireland is more at risk is because of the 29,300,000,000 the government is pumping into Anglo Irish, with that money we could do so much for example build new roads, schools, hospitals, buy everyone in Ireland 12 ipads each, supply everyone in Ireland who can use a car with a car, we could even build 7 Burj Khalifa’s (thats the tallest building in the world) or set up our in space programme!. But no the government choose to put the money into a dead bank,nice one Fianna Fail!

  18. 18 Steven October 6, 2010 at 9:25 pm

    I think ireland is more of a risk because:
    – We are now a more risky country to lend money to as we one of the PIGS of europe
    – Brian Cowan’s radio interview in galway sure doesnt help that
    – Our goverment is trying to borrow money to stop anglo from going bust, plus anglo is the third biggest bank in ireland! not the first the third!!!

  19. 19 Adrian Rowland October 7, 2010 at 1:30 pm

    We are in so much dept because we have to pay over 30 BILLION to keep Anglo from going under.Maybe if we had a sober taoiseach who liked the odd pint like BRIAN we would not be called one of the PIGS

  20. 20 Cillian Melly October 7, 2010 at 7:50 pm

    Ireland is broke and anglo irish are asking 29.3 billion and the irish government have decided to just hand over the money. On average every year ireland have bee borrowing 20 billion and this figure is going to increase hugely by 2012 all thanks to anglo irish bank.:)

  21. 21 Michael Lally October 7, 2010 at 7:54 pm

    I think Ireland is in a terrible recession because during the “Celtic Tiger” the Irish governmaent thought that they should spend loads of money because surely they would keep making lots of money,but that didn’t work so the Irish government was in debt so they thought that if they borrowed
    money,used it wisely and made more money out of it they would
    be able to pay it back.That didn’t work either and to make matters even worse the recession started.that ment they were in more debt than before and that they needed to make a lot of cuts and borrowed even more money.The debts piled on and are still as I am typing this!The interest rate has gone up because the banks that Ireland have borrowed money from has put up the interest rates because they think Ireland is a risky country.Brian Cowen
    certainly didn’t help when he was drunk or hungover during a radio interview which was all over the papers in 24 countries,so the banks have raised the rate even more because of our bad Taoiseach!Brian Lenahan says with massive cuts(By the way when he says cuts he means us not they’re 200,000 euro yearly paid jobs!)we’ll be out of the recession by 2012.All I can say is that I hope that by next year I don’t have to be looking at “Biffo has lost it”,”The worst disaster in history” or
    “Recession gets worse” any more, I’m sick of it how about the Tabliods stick with the footballers and what they’re doing in their spare time and the Broadsheets have something better to write about,something good not dull.

  22. 22 Kevin Canning October 9, 2010 at 7:42 pm

    Banks lent to much during the Celtic Tiger and were certain they’d get the money back.

  23. 23 James Byrne October 11, 2010 at 5:29 pm

    I think Ireland is at more of a risk because our national debt keeps going up because the government have to but 39 billion into anglo.

  24. 24 Danny Foy October 11, 2010 at 9:51 pm

    Ireland is more of a risk than last year because:
    1)The government is borrowing huge amounts of money to put in2 that bust bank anglo that we have 2 pay back.Why cant the government let it go?its not hard!
    2)We are one of the pigs in europe which means we are 1 of 4 countries likely 2 go bankrupt.

  25. 25 Shane O'Connor October 12, 2010 at 10:28 pm

    Ireland is much more of a risk now because the banks lent out huge amounts of money to people during the celtic tiger and now that we are in debt the banks want their money back with interest but the people can’t pay it back.

  26. 26 daniel October 15, 2010 at 9:25 pm

    The idea of a National Solidarity Bond was announced in the 2010 Budget – full details were released today.

    The details of the new solidarity bond were confirmed today. It will pay an annual interest rate of just 1% a year (fixed) with added bonuses for those who leave the money in for five, seven and ten years .
    The maximum bonus after 10 years is 40% – so the maximum gross return possible is 50% over 10 years .

    If you cash in the bond at the end of 5 years you will get a 10% Bonus
    At the end of 7 years you will get a 22% Bonus and if you keep the bond for 10 years you will get the maximum 40% Bonus.

    DIRT will be payable on the basic interest – but not on the bonuses.

    A 50% gross return over 10 years is 4.14% AER . After DIRT this comes to 3.96% AER.
    A normal deposit account would need to be paying 5.28% before DIRT to match that rate.

    An investment of €1000 in solidarity bonds for 10 years will result in a balance of €1475. (3.96% AER Net)
    Keeping €1000 in the solidarity bond for 5 years will give a balance of €1137.50 – after DIRT which is 2.5% AER (Net).

    The bonds will be available for purchase in all post offices from Tuesday May 4th 2010.
    With some instant access accounts paying as much as 3.3% before DIRT it will be interesting to see the level of take up for these new bonds that require a 10 year commitment to get the top rate of 3.96% Net.

    There are already similar rates available with An Post : – the 17th Issue Savings Certificates over 5.5 years is paying 3.53% AER (Net)

    The minimum individual investment in this Solidarity Bond is €500 . Savers can deposit a lump sum or put in regular lodgements of €25 or more. (The €25 a month will be put in an An Post deposit account until you reach a balance of €500 – after 20 months).

    The maximum individual investment allowed in the solidarity bond is €250,000 . (€500,000 for joint accounts) There are no fees, charges or sales commissions attached to the bond.

    Savers can access their money at any time without penalty – but the longer money is left invested the greater the return in the form of bonuses.
    Money invested in these solidarity bonds will be used by the government to finance capital-investment programmes.

    See other bank savings rates for comparison.

    Also see for full terms and conditions of the solidarity Bond

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