Professor John McHale:

When it comes to identifying bubbles, that is really difficult. It certainly is a source of risk, that interest rates that have been, as Deputy Doherty states, at very low levels and giving huge support to the budgetary position. If the interest rates were to rise, we would have very different debt dynamics.

On the other hand, at the moment, it does not seem that the markets are predicting very substantial interest rate increases during the next ten years or so. One can see that by looking at the yield of the bonds, the fact that yield on Irish ten year bonds has increased to above 1%; I think they came back down and I am not quite sure where they finished today. However, a ten year bond yield gives members some idea of the average interest rates that are expected over the next ten years on shorter-term bonds, essentially it is average interest plus a risk premium. The market's assessment is still quite sanguine in terms of how low interest rates will be in the next number of years. If it is a bubble, the fact that those yields are so low and the prices are so high is indicating a bubble. That could be the case, it could burst and could change very quickly. There is risk there, but at least the market assessment is still that interest rates are going to stay low for a protracted period.

I had not been aware of the century bonds which the Deputy mentioned, which shows that the market's longer-term expectations of interest rates have taken a jump upwards but given one is not seeing it in terms of the ten year bonds, it is outside that ten year window. It is certainly a risk but it does not seem that there has been a huge change in market sentiment thus far, though certainly some change