# Irish Bond Yield Falls



## Brendan Burgess (12 Apr 2010)

This report in the [broken link removed] online sounds very negative



> *Irish bond yields fall*
> 
> The yield on Irish 10-year government  bonds lost four basis points today, following declines in Italian and  Spanish bonds.
> The security's yield fell to 4.47 per cent, with  the spread between Irish bonds and German bunds at 129 basis points.
> ...


Irish bonds "lost" four basis points 
The yield on Italian bonds "slipped"
The Spanish yield "declined" 
The Poruguese yield was "down" 

Would it not be more correct to say "Cost of borrowing falling for Irish government?" 

I suppose if you were an investor hoping to buy new issues of the shares, the return will be lower.  But I suspect that the readership of The Irish Times will be happy to see the Irish "losing" and "slipping" and "going down" .


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## jpd (12 Apr 2010)

Sounds like good news to me


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## z101 (19 Apr 2010)

You cant be seen to be giving any credit for decisions made that may have contributed to lower cost of borrowing. You could get lynched for even tacitly agreeing with a member of government nowdays, not to mention it's unfashion-ability among media 'experts'.


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## mtk (19 Apr 2010)

sounds purposely misleading to me


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## shanegl (19 Apr 2010)

Its standard language.


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## Brendan Burgess (25 Apr 2010)

When the opposite happens, they are still falling...

[broken link removed]

*Greek bonds fall as deficit widens*


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## darag (25 Apr 2010)

shanegl said:


> Its standard language.


Not really, particularly if coupled with a clause like "following declines in Italian and Spanish bonds".  It's pretty obvious that the author of the piece does not appreciate that yields and values are inversely related.  Italian and Spanish (and Irish by implication) bonds did not "decline" - they grew (in value).

Small comfort admittedly given the condition of the country's finances but markets are like that.


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## z107 (25 Apr 2010)

What does this mean?

The Government sells bonds to get money. Presumably there is a return on these bonds for those that buy them. This return has gone down?
I can see where this is good, in that Ireland doesn't have to pay as much as a return on these bonds (if that's how it works).

Is there a bad side to this?


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## darag (25 Apr 2010)

Exactly - there is no bad side for the Irish government but this is just one small movement in the fluctuating market value of bonds.  This market has been quite volatile over the last year or so.

Think of it like an investment property; let's say you were making 10k a year net renting out a property worth 100k - that's a 10% yield.  If the value of the property jumps to 200k - your 10k a year rent is now "only" giving you a 5% yield.  Would you be dissapointed with the "reduced" yield?  Hell no - you're 100k better off.

So the value has increased and the yield has declined.

In this analogy, the Irish government would be building and selling new investment properties; what they used to be able to sell for 100k, they can now sell for 200k.

I've highly exaggerated the figures here to make the sums simple - in reality we are talking about yield movements measured in basis points (hundreds of a percentage) and value movements measured in tenths of a percent - not prices doubling like in the above example.


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## OakesP (25 Apr 2010)

Brendan Burgess said:


> This report in the Irish Times online sounds very negative





Brendan Burgess said:


> ....  But I suspect that the readership of The Irish Times will be happy to see the Irish "losing" and "slipping" and "going down" .




Regarding the extract above, why do we assume that the IT’s readership cannot draw its own conclusions as to what it means if yields drop?  Or are you saying they can, but that the readership prefers, what you infer, is negativity.  I just ask because (even though I don’t agree with the inference) why does it only apply to IT readers?  A read of the FT, WSJ and other publications will show that they generally report in the same manner.  Note also that both stories came from ‘Agencies’ – i.e. basically a copy and paste from news sources the IT has a licence to take stories from.  So perhaps shooting the wrong messenger here?  

I take the point mentioned by another poster that there could be an issue with the journo (whoever he/she is) not understanding what was written, but the written words are not wrong and as someone else pointed out are in fact standard reporting.  Over the past 20 years of my investment management experience both overseas and in Ireland (at a combination of regulated firms and regulators) I cannot see the journo’s wording being wrong or misleading.  In fact I have seen the same words used in regulatory enforcement actions.

Regarding the second story from the IT, we also need to note that we cannot draw comparisons between the subject matters of the two articles to criticise the IT’s copy and paste exercise.  The second article is premised on CDSs for (or cost of insuring) Greek sovereign debt.  The first article is premised upon a drop in yields.  I think we need to compare like with like and again note that it is Agency reporting as opposed to the IT’s journos.  I have no love or hate for any Irish journos from any paper – but I don’t understand why only IT readers were brought into the fray.  Is it not the same for readers of the Indo, Examiner, SBP etc? 

What I would love to see in Irish papers is analysis of why yields dropped, why spreads widened and how the CDS market operates.  I am sure that some out there will argue that any drop in Greek yields is due to the rescue package.  I wonder what way the markets will move should it become apparent that Greece is not capable of meeting the strict conditions that Germany and to some extent France are yet to impose.  And even if the Greeks state that they can meet these as yet unknown requirements, I wonder whether the statement will be treated with great circumspect since Greece was caught out misstating its deficit?  An interesting point for Ireland too given our deficit misstatement  - sorry that apparently was just a technical issue which we fixed without EuroStat telling us to do so -even though we were in discussions with EuroStat about the issue (sounds all a bit circumspect to me).  Unfortunately for us markets trade on headlines – see article in today’s Sunday Times headed "Euro traders’ deadly gaze fixes on Ireland" at  timesonline.co.uk/tol/news/world/ireland/article7107230.ece


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## darag (25 Apr 2010)

OakesP, are you honestly claiming that it is standard to describe a fall in bond yields as "a decline in bonds"?

I also work in the financial industry and I have never heard this usage.  Stating that a bond or bond markets have declined ALWAYS means that their values have fallen not that their yields have declined.

On the other hand, I agree with you to an extent on your other point.  Often I feel Brendan is overly sensitive to/critical of what he perceives as inaccuracy in the media when the commentator is pessimistic.  I generally ascribe such inaccuracies to shockingly poor quality of the Irish press and media particularly when it comes to finance; let's face it a huge amount of rubbish has been written by the optimists when it comes to the banking crisis, the property market and the economy generally over the last couple of years also.

But I suppose that when the professor of finance in the most prestigious university in the country doesn't know the difference between an asset and a liability, it is difficult to expect accuracy from journalists even those who are "specialists" in business, finance or economics.


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## jpd (25 Apr 2010)

I am always astonished by the inaccuracies/misstatements written by journalists in subjects in which I consider myself knowledgeable. I presume that this is widespread among other subjects and thus,  generally, I take what is written in newspapers, however prestigious, with a large grain of salt.


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## dubrov (25 Apr 2010)

As was already mentioned, the article was probably copied from another news source but the original article would have een aimed at the financial community where bond yields as opposed to prices are normally discussed.

The Irish Times article was written for Joe Public who wouldn't know bond yields from their elbow.Most would assume a drop is bad news.

I think the journo either a) selectively sourced the article to fit in with a recessionary theme or b) was too stupid to realise that a drop in bond yields is positive news.

Either way, not great journalism.


It's only news if something if falling in the papers.


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## darag (25 Apr 2010)

dubrov said:


> As was already mentioned, the article was probably copied from another news source but the original article would have een aimed at the financial community where bond yields as opposed to prices are normally discussed.


Yes, bonds are often measured by yield instead of value in the financial industry but I have never heard of a "decline in bonds" being used to describe a decline in bond yields.  You would always include the word "yields" to distinguish the latter from the former.  In my experience, a "decline in bonds" without explicitly stating values or yields would always be understood as a decline in bond values.

Most likely the journalist or editor did not know the difference and dropped the word "yields" from the original source which completely inverts its meaning.  The first sentence was probably sourced from something like "The yield on Irish 10-year government bonds lost four basis points today, following falls in Italian and Spanish bond yields."


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## OakesP (25 Apr 2010)

darag said:


> OakesP, are you honestly claiming that it is standard to describe a fall in bond yields as "a decline in bonds"?
> 
> Darag - The IT article on 12 April starts with, and I quote, "The yield on Irish 10-year government bonds lost four basis points today, following declines in Italian and Spanish bonds."  If the first line in your post is a reference to this article, then I do not see your point.  If the sentence was just and only just "Declines in Italian and Spanish bonds" I could see your point.  I think it is also fair to say that any reasonable reader would impute/ascribe the word ‘yields’ as the last word in the sentence since (a) declining yields is the subject matter of the sentence and (b) a key subject matter of the article is set by its title.
> 
> ...


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## Brendan Burgess (25 Apr 2010)

Oakesp asked



> Regarding the extract above,  why do we assume that the IT’s readership cannot draw its own  conclusions as to what it means if yields drop?  Or are you saying they  can, but that the readership prefers, what you infer, is negativity.  I  just ask because (even though I don’t agree with the inference) why does  it only apply to IT readers?


Hi Peter.  I was wrong in that comment.  I should have assumed very poor journalism first over some conspiracy theory or preference for bad news. 

I just found it striking that there was some good news, and they managed to twist it right around to make it look like bad news.

And, of course, even if my conspiracy theory was correct, Irish Time journalists or their readers would not be in any way unique.


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## Brendan Burgess (25 Apr 2010)

OakesP said:


> By the way, who is the "professor of finance in the most prestigious university in the country doesn't know the difference between an asset and a liability".  I'll take care if he is one of the people I speak to regularly - was this in a newspaper article or TV interview which i can view.



Brian Lucey


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## OakesP (25 Apr 2010)

Brendan, Occasionally I notice that the FT describes what I would normally think to be straight-forward concepts in overtly simple terms to its readers.  At first this took me by surprise but then I noticed this approach generally happens in their weekend editions. I understand the weekend edition has a wider class of readership than just the pinstripes who read (at least) Monday-Friday's FT editions.  That is a good example of a paper catering to its audience in terms of explaining issues - the way good journalism should be.  But I am sure the FT has its detractors (for good reason) and I sometimes see it use negative language where more positive text could equally suffice to report on an issue. 

As I now think is your point - nothing seems to grab the attention of the reader at this time in history than negative news.


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## darag (25 Apr 2010)

OakesP, I responded to your claim the language used was not wrong and was standard.  

I disputed that this language is standard and still dispute it.  I pointed out simply that "declines in bonds" or "declines in Italian or Spanish bonds" would be read (by those with an interest in such things) as a decline in bond values not yields.

The whole point here is that the sentence in its entirety - "The yield on Irish 10-year government bonds lost four basis points today, following declines in Italian and Spanish bonds." - does not make sense and would not be written by a finance professional because of the implicit assumption of correlation between euro government bond prices.  So adding this context only makes the sentence nonsensical.

I'm not sure what it is about the second paragraph that you view as being irrelevant - we are discussing the accuracy of financial language after all.  I simply described my experience of the use of such language.

And I think the contextual aspects do not correct the mistake here; if the sentence were written "The yield on Irish 10-year government bonds lost four basis points today, despite declines in Italian and Spanish bonds.", I still wouldn't read the qualifying second clause as referring to bond yields even though the correlation is inverted.

The professor is a certain Mr Lucy of TCD who claimed in an Irish Times article and subsequent in radio interviews that Anglo's 27 billion euro deposit book could be sold (at a small discount) for 25 billion.  This 25 billion cash would then be enough to cover the hole in it's balance sheet.  When challenged on this on an internet forum he very suddenly decided that he could not immediately respond as he was leaving at that very minute for a 3 week holiday during which he would be uncontactable.  Obviously we've heard nothing more about this wondrous plan to fix Anglo which was announced by the good professor with much fanfare.


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## OakesP (25 Apr 2010)

Darag - If the sentence in the article is considered wrong, one would argue that it is wrong not because of a financial misinterpretation (e.g. confusing CDOs with CDSs) by the journo, but rather because the sentence is considered contradictory regardless of the subject matter.  The sentence was not wrong on this basis.  Whether you and I agree/disagree as to it being standard reporting is neither here nor there unless we want to waste time crawling through investment reports and newspaper stories and comparing results.  At the end of the day the sentence in the IT article was not wrong, rather it could have been written better.  The only thing wrong here is that you erroneously read my comments and challenged them without analysing what I in fact wrote. These things happen from time to time and no harm done.

Further anybody reading the IT article would (a) without financial experience - think something didn't make sense (probably the topic generally) or (b) if they had investment experience - would know that the word 'yield' at the end of the sentence could (not 'should') have been there in order to dot the i's and cross the t's. 

Therefore no need to discuss your original second paragraph because the point you want to debate with me hinges on the IT article being factually wrong.  In respect of my view that I have seen this language used as standard language in other documents, we can settle this if we want to play a game of "show me yours and I’ll show you mine (i.e. evidence)".  

Anyway I can see posters to this thread becoming bored with this exchange, so we can agree to differ or pick up in PMs.  

By the way, context is everything.  Quoting out of context serves no useful purpose and damages the legitimate points the quoter seeks to make.  And I think the re-worded sentence (if you are suggesting it as a replacement) is technically worse than the original IT one.  The new sentence makes me wonder why I should consider it strange that Spanish and Italian bond yields (even though the word ‘yield’ is not used next to these countries' bonds) dropped simply because Irish yields dropped.
 

Thanks for the BL stuff.  I have now read over those comments.


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## darag (26 Apr 2010)

OakesP, yes this is getting tedious and is adding little to the discussion.

I also agree that much of this cannot be proven without - let's say - conducting a statistically significant survey to determine what finance professionals what they would make of the sentence.  That obviously is not going to happen so let's drop it and agree to differ.

However, you've accused me multiple times of being wrong and erroneous in my reading of your original comments and that is simply not fair.  The comment I responded to was the following:


> I take the point mentioned by another poster that there could be an issue with the journo (whoever he/she is) not understanding what was written, but the written words are not wrong and as someone else pointed out are in fact standard reporting



I challenged the "standard reporting" aspect of this in the context of the phrase "declines in bonds" which - if you read some of the prior comments at that point in the thread - was what I was attempting to explain to umop3p!sdn.  Without having qualified which exact words you were referring in the above sentence, you can not fairly accuse me of being "wrong" in my reading of your comment.  Your "magnanimous" forgiveness of my "error" grates a little, you will appreciate.


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## OakesP (26 Apr 2010)

This is tedious. PM me if you wish. Happy to discuss via email or indeed by phone.


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## dewdrop (7 Sep 2010)

As an ordinary layperson who could not engage in the technical discussions already in this tread i am just wondering if Mr Cowan,s reaction to the increase in our bond yields as just an "ebb and flow" situation. From what i see it is going up and not much sign of coming down which ebb and flow would suggest.


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## tiger (7 Sep 2010)

Yes would agree.  Brief story on rte
http://www.rte.ie/news/2010/0907/economy_bonds.html
Worth remembering that Irish banks have to roll over about €25BN of debt this month and  the bank guarantee expires at the end of Sept
http://www.reuters.com/article/idUSLDE6801U020100901
Shaky days ahead....


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## canicemcavoy (16 Sep 2010)

Borrowing costs up again: http://www.rte.ie/business/2010/0916/ntma.html



> The interest rate demanded by investors to lend money to Ireland rose to 6.07% for Irish Government 10-year bonds this morning.


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## csirl (16 Sep 2010)

canicemcavoy said:


> Borrowing costs up again: http://www.rte.ie/business/2010/0916/ntma.html


 

This is the reaction to Cowan's radio performance. Can someone work out the cost to the exchequer of this incident?


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## canicemcavoy (17 Sep 2010)

Today it's leapt to 6.3% - there's even a #bondwatch subject on Twitter.


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## The_Banker (17 Sep 2010)

Dept of Finance are now denying rumours that they have approached the IMF for help. The very fact that these rumours have started is not a good sign.

http://www.rte.ie/business/2010/0917/ntma.html


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## aristotle (17 Sep 2010)

Yeah thats worrying. A bit like the rumour around Anglo months before it went down the toilet.

What happens when you approach the IMF, they give you money in return for radical changes to public finances?


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## The_Banker (17 Sep 2010)

As I understand it yes...


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## canicemcavoy (17 Sep 2010)

Moody's have downgraded Anglo bonds:

http://businessetc.thejournal.ie/moodys-downgrade-rating-of-anglo-irish-bonds-2010-09/?h=9af

And the ten-year is now over 6.5% according to Reuters...


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## DerKaiser (17 Sep 2010)

The_Banker said:


> As I understand it yes...


 
Maybe that's why €3bn of cuts have been replaced with a _minimum_ of €3bn of cuts


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## Carramore (19 Sep 2010)

*6.5% yield on 10 year bonds*

I bought a shed-load of 6.5% bonds for my pension fund on Friday, the logic being that I will continue living in Ireland, come what may (I'm too old to think of emigrating); I have some money in Post Office Bonds, and these bonds have to be as safe as money invested in the Post Office - the government can't default on some of irs debt while leaving other savers untouched - but are yielding considerably more. Is there a hole in my logic?


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## Protocol (19 Sep 2010)

Note that three are three rates or yields associated with bonds.

Note that all bonds have a coupon, this is the interest paid by the borrower (i.e. the Govt in this case).

Then there is the running or current yield, which is the coupon divided by the current price.

So a bond may have been issued a few years back at 4% coupon.

The price has fallen now well below the 100 euro par value.  Say it has fallen to 80. So the original holder of the bond has a papercapital loss of 20%. (You can lose on bonds!!)

They sell at 80, you buy at 80.

You earn 4 / 80 = 5% running yield from the annual 4 euro interest.

You will also get 100 back when it matures, so that's 20 of a capital gain.

Add the running yield to the capital gain/loss gives you the yield to redemption or maturity (YTM).


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## tiger (20 Sep 2010)

Carramore said:


> I bought a shed-load of 6.5% bonds for my pension fund on Friday, the logic being that I will continue living in Ireland, come what may (I'm too old to think of emigrating); I have some money in Post Office Bonds, and these bonds have to be as safe as money invested in the Post Office - the government can't default on some of irs debt while leaving other savers untouched - but are yielding considerably more. Is there a hole in my logic?


 
With the Euro we're in unchartered territory here, but in the past Govts have defaulted on debt.
In the US, if a state or municipal authority was to default, I believe the Fed would step in.
In the Eurozone, not sure what the rules are.

(edit, added some links)
*Argentina announces debt 'default' plan*
*http://news.bbc.co.uk/1/hi/business/1633369.stm*
Harrisburg, Pennsylvania, Bond Default Averted With State Aid
http://www.businessweek.com/news/20...ania-bond-default-averted-with-state-aid.html


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## Shawady (20 Sep 2010)

DerKaiser said:


> Maybe that's why €3bn of cuts have been replaced with a _minimum_ of €3bn of cuts


 
Prof Honohan also talking about a minimum of €3bn cuts.
It is interesting when he says these measures are needed to get the deficit "close to 3%" by 2014, which I take as he does not believe we will actually achieve the 3% target.

[broken link removed]


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## canicemcavoy (20 Sep 2010)

According to Brian Lucey, 6.6 now...


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## Shawady (20 Sep 2010)

canicemcavoy said:


> According to Brian Lucey, 6.6 now...


 
Relax, normal ebbs and flows of the market.


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## canicemcavoy (20 Sep 2010)

I hope that is understated tongue-in-cheek humour.


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## shanegl (20 Sep 2010)

Firmly in cheek one would hope!

http://www.breakingnews.ie/ireland/cowen-plays-down-spike-in-cost-of-borrowing-472604.html


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## canicemcavoy (20 Sep 2010)

shanegl said:


> Firmly in cheek one would hope!
> 
> http://www.breakingnews.ie/ireland/cowen-plays-down-spike-in-cost-of-borrowing-472604.html


 
Sure he's a gas man when he's had a few pints.


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## TarfHead (22 Sep 2010)

Now that we're all becoming 'experts' on the international bond market and sovereign debt ..

.. why the fixation on comparing the difference between Germany and Ireland for bond rates ? Is this not like criticising me for not being as fast as Usain Bolt ?

We're a small open economy, dependent on MNCs. They're not.
We've a population of 4.5m. They don't.
We've suffered a catastrophic crash following a property bubble. They haven't.

On what grounds is it valid to compare bond yields against Germany. Why not against Portugal, Italy, Spain or Greece ?


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## DerKaiser (22 Sep 2010)

TarfHead said:


> On what grounds is it valid to compare bond yields against Germany


 
The whole point of the comparison is that Germany is as close as there is to risk free in the eurozone, so what we pay for credit in excess what the Germans pay represents our riskiness.

I think it's quite valid to draw conclusions from the fact that we paid 1.5% in excess of the Germans for 10 year bonds less than 6 months ago but we are now paying close to 4% more.



TarfHead said:


> Is this not like criticising me for not being as fast as Usain Bolt ?


 
Nope, 3 years ago Usain could do the 100m in 10.0 seconds. Assume you are an athlete that could do it in 10.5. 

6 months ago you could do it in 11.0 seconds (Usain does it in 9.5)

Now you can do it in 13.0 seconds (Usain still does it in 9.5).

The fact that you are now 3.5 seconds slower than Usain is a valid comparison that highlights your condition has deteriorated significantly over 3 years and particularly badly over the last 6 months.


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## TarfHead (22 Sep 2010)

DerKaiser said:


> The whole point of the comparison is .. that we paid 1.5% in excess of the Germans for 10 year bonds less than 6 months ago


 
That's the bit I was missing, thanks.

_(and the lightning speed of an Olympic champion )_


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