The Irish economy has grown so fast over the past decade it has earned itself the title of 'Celtic T...
The Irish economy has grown so fast over the past decade it has earned itself the title of 'Celtic Tiger' but continued economic growth has led to fears of overheating.
Since June 1999 there has been a fairly sharp acceleration in inflation going from 1.2% in July last year rising to 6.2% by August 2000.
However, fund managers agree that since Ireland is a member of Emu and Irish interest rates are set by the European Central Bank, overheating and inflation will have little impact on the Irish government bond market.
With the Irish economy growing so strongly, the country's exchequer is running a sizeable budget surplus and the requirement of the Irish authorities to issue bonds is very small.
Dennis Gould, investment manager at Axa Sun Life Investment Managers, says: "From the credit point of view, the stronger the economy, the better it is. I am not concerned about inflation or overheating, all I care about is its relative credit compared to France and Germany.
"Ireland is a small market so there is not so much debt and it is difficult to create decent sized issues. They try to create reasonably liquid issues but it is hard."
Michael Crowley, an economist at Davey stockbrokers, the stockbroking arm of the Bank of Ireland, disagrees saying liquidity in the Irish bond market has improved over the past five years.
Crowley says: "Liquidity is not an issue in the Irish government bond market. From the point of view of investors who want to trade in Irish bonds, there is no problem in trading in sizes of between e25m and e50m, which is an indication of a very liquid market."
The National Treasury Management Agency, the government agency responsible for managing debt, has consolidated the market and has built up issues into sizeable ones.
The amount of 2005 and 2010 bonds in issue, at e5bn and e6bn respectively, compares favourably with other small Emu markets.
However, the agency believes it is possible that no government bonds will be issued at all next year.
It has also said that there is a possibility of it buying back debt in the next two or three years, maybe even earlier, should the economy grow more strongly than has been forecast.
David Hooker, fund manager at Royal & Sun Alliance, says: "On a supply basis, the Irish market looks attractive, running a budget surplus already with buy back beginning earlier than expected, we expect the yield premium over bonds to narrow.
"Looking at euro bonds in general, we are bullish at the short end of these markets as we expect economic activity to slow and the oil price to decline.
"We believe the ECB is close to the peak of interest rates and the Irish economy is doing well
"With the buyback programme starting next year, buy them while you can."
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