Written answers

Wednesday, 16 November 2016

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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102. To ask the Minister for Finance regarding the recent strong rise in bond yields, a key measure of long-term interest rate expectations, if he has assessed the potential cost of rising interest rates on our national debt and economic growth over the coming years; and if he will make a statement on the matter. [35425/16]

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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My Department and the National Treasury Management Agency (NTMA) are monitoring, on an ongoing basis, bond market developments. Government bond yields in general including for Ireland have risen in recent weeks and particularly so in recent days. It remains to be seen whether this is a temporary re-pricing or the beginning of a more sustained rise in yields generally.

While the recent increase in government bond yields has no immediate impact on our debt servicing costs, a sustained rise could negatively impact the cost of servicing the National Debt over the coming years.

I am aware of the sensitivity of the economy to changes in interest rates. Indeed, the Risk and Sensitivity Analysis chapter in Ireland's Stability Programme April 2016 Update (SPU) included an illustrative assessment of the impact of a 1 percentage point (pp) increase in interest rates (SPU page 27).

It is important to note that interest rates are influenced by a number of factors including inter alia inflationary expectations, exchange rate developments, saving patterns of firms and households and risk premia. The precise impact of rising interest rates on economic growth will depend on which factors are driving the increase and whether the increase is likely to persist.

The NTMA completed its final bond auction of 2016 on 3 November. That auction received bids of 2.6 times the €750m being auctioned, demonstrating that investor interest was very strong. This represented Ireland's continuing growth and demonstrates confidence in Ireland among the global markets. With the completion of that auction the NTMA has issued €8.25 billion nominal from its stated target range of €6 10 billion in the bond markets this year, at a weighted average yield of 0.82 per cent.

The NTMA's debt issuances earlier in the year, a time when Irish Sovereign borrowing yields were at close to record lows, have allowed it to lock in longer maturities at low interest rates, which is positive for debt servicing costs and will be important when interest rates return to normal.

It is important to bear in mind that Ireland's fundamental debt dynamics are improving and debt servicing costs are declining. These improved fundamentals mean that Ireland has now regained its A-rating with all the major credit rating agencies, following Moody's upgrade earlier this year.

The Exchequer is in a healthy funding position at present. It had €9 billion in cash and other liquid short-term investment balances available to it at end-October and it has limited financing needs in the months ahead. My Department forecasts a 2017 Exchequer Borrowing Requirement (EBR) of €2.2 billion. The next Treasury Bond maturity is not until October 2017.    

Looking towards 2017 the NTMA has advised me that next month they will announce their 2017 funding plan which will include a planned bond issuance range.

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