Recent Irish bond yields explained in plain English.

We are not issuing bonds, so the cost of servicing our debt has not magically risen to ‘7%’ because we are not borrowing at that rate, what is happening is all in the secondary market.

What that means: The primary market is when the bond is first issued at par (100) and with a coupon (for instance 3%). When a bond is issued the main concern of a bond buyer is getting your capital back (that par value of 100) and it trumps the yield in terms of importance, so you regularly see people buy debt at very low rates from those most likely to pay it back, Microsoft recently issued a bond at 0.8%!

That is where the Ireland story gets interesting, our bond yield is not 7% because we issued it at that yield or interest rate, it is 7% because people are sacrificing their capital to get out of the trade. That means they don’t believe they will get their money back at the end and …

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When will bonds be available online?

Typically the bond market is something that institutional investors, sovereign funds, and the very wealthy tend to invest in. Take for instance Dolmen Securities ‘Bond of the week’ (which is CRH this week), when I enquired about minimum order sizes I was told it was €50,000.00 which is fine if you are a bank but the majority of private investors would not have that kind of money to put into a bond – or at least not at that price tag or it would affect their diversification. Dolmen are a great house btw, I like their analysis, and in general what they do. However, CRH are trying to raise a bond in a market where literally everybody is trying to raise funds or roll over debt.

The competition is high, the US Treasury and HM Treasury in the UK are leading the way, that’s before we even get into municipal bonds and corporates. So what can be done? The Treasury in the US have alwasy taken the view …

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