The Corner

Storm Warning

Via the Irish Independent, this is worth noting:

Irish government bonds due to be repaid between 2011 and 2025 have been rejected as collateral by Switzerland’s central bank.It is a poor start to a year when Ireland must rebuild its tattered reputation as a borrower. Despite the news, the yield — or interest — on Irish 10-year debt was little changed in the markets, hovering at around 9pcData published by the Swiss National Bank show that it excluded Irish government debt and bonds issued by a mix of Irish and foreign banks domiciled in Ireland from its list of eligible assets for ‘repo’ deals. Repo (repurchase deals) is a form of lending by central banks. Under such deals, lenders advance cash in exchange for collateral, such as bonds, and agree to sell the collateral back at a fixed price at a later date. The difference between the cash advanced and the repurchase price is the lender’s profit on the deal.These deals have become vital to the  european  bank sector since the start of the credit crisis, allowing banks to access cash even in illiquid markets. By ruling Irish government bonds ineligible, the Swiss Central Bank makes the bonds less attractive to hold. The Swiss stopped accepting Greek bonds for repo on April 26 last year. The changes were spotted last night by Irish researcher Lorcan Roche Kelly. The change in relation to Irish government bonds had been made in December 2010 after ratings agencies cut Ireland’s rating to below ‘A’ status.

Very wise. Best guess is that it’s only a matter of time before Ireland (and Greece) default, er, “restructure” their debt. The trick will be to do this without creating a fresh crisis within a European banking system heavily exposed to those countries and, for that matter, to other heavily indebted countries now beginning to pay a real price for Brussels’ funny money.


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