Mary Upton (Dublin South Central, Labour)
Link to this: Individually | In context

Question 23: To ask the Minister for Finance the impact on the bund spread for sovereign debt here, and any consequent impact on the Exchequer position going forward, as a result of recent rating agency downgrades; and if he will make a statement on the matter. [44887/09]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
Link to this: Individually | In context

The National Treasury Management Agency (NTMA) have advised that in the last eighteen months, investors in Irish bonds have sought an increased premium relative to German bonds. The Agency advises that this "spread" rose sharply in the early part of 2009 as a result of a number of factors, including the deterioration in the public finances and uncertainty about the cost to the Exchequer of restructuring the Irish banking sector. Over the course of this year, the NTMA undertook a number of initiatives to diversify the investor base and improve liquidity. In addition, I travelled to a number of major European financial centres so as to set out to key investors the Government's policy in relation to budgetary consolidation, the problems in the banking sector and the restoration of competitiveness in the economy.

The NTMA have advised that demand for Irish debt from international investors has increased and market conditions have generally improved. The spread on 10-year borrowing peaked at about 2.8% in March and, while still high, it has narrowed considerably. On a technical assumption of an EBR of €20 billion next year, the NTMA advises that a 1% increase in interest rates would have a full-year impact of €200 million on debt service costs.

As regards the recent downgrade of Ireland's debt, there was no measurable increase in the cost of funding as a direct result of the announcement. The NTMA advise that it is likely that investors had already "priced in" this effect.