Can we buy our own unmatured bonds at a discount?

C

callybags

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I will start this by saying that I don't understand the working of the bond market but here goes:

Using round figures.
Yesterday we repaid an Anglo bond for 1 Billion Euro which was the original redemption value.

It is possible that the bond had changed hands many times since it was originally issued and not always at face value.

So let's say the current owner paid 600 Million for it three years ago.

Could we have bought it last year for 800 Million, thrown it in the bin and saved 200 Million? The holder would make a profit of 200 Million as well?

Can we do this for existing bonds that are in existence?

I am fairly sure there is something flawed in this otherwise I'm in the wrong job :)
 
callybags said:
I will start this by saying that I don't understand the working of the bond market but here goes:

Using round figures.
Yesterday we repaid an Anglo bond for 1 Billion Euro which was the original redemption value.

It is possible that the bond had changed hands many times since it was originally issued and not always at face value.

So let's say the current owner paid 600 Million for it three years ago.

Could we have bought it last year for 800 Million, thrown it in the bin and saved 200 Million? The holder would make a profit of 200 Million as well?

Can we do this for existing bonds that are in existence?

I am fairly sure there is something flawed in this otherwise I'm in the wrong job :)
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No, there is nothing wrong your idea. There would be some market manipulation concerns but I wouldn't see it as a big issue. You would also need to find the cash to buy it back. Also, not all holders would sell because they would expect to get par back at maturity so you would have to probably threaten them with a default which the ECB wouldn't allow.
 
This very point was put to Alan Dukes on the Last Word yesterday evening. He said we would have needed to find the cash from somewhere and that funds from the ECB were not allowed to be used for this purpose. Seems kinda strange as it would have benefitted the ECB also buy having to lend less money to us. Maybe we should have a whiparound here before the next bond is due!
 
It has certainly been suggested that the ECB would buy Irish government bonds in the market as the prices were so discounted at one stage.

I presume that they did not buy Anglo bonds though.

Brendan
 
The government, which owns Anglo, could imaginably make policy which would have a great effect on people's expectations of repayment, and thus on the value of the bonds. They could make belligerent sounds about burning the bondholders, greatly reduce the value of the bonds, and buy them up at a massive discount.

That is market manipulation.

As well as being illegal, it would have a huge negative impact on our reputation. Further, those who sold the bonds at a discount might have a good case for compensation in the courts.
 
Padraigb said:
The government, which owns Anglo, could imaginably make policy which would have a great effect on people's expectations of repayment, and thus on the value of the bonds. They could make belligerent sounds about burning the bondholders, greatly reduce the value of the bonds, and buy them up at a massive discount.

That is market manipulation.

As well as being illegal, it would have a huge negative impact on our reputation. Further, those who sold the bonds at a discount might have a good case for compensation in the courts.
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Very true but not really relevant here. Anglo is bust. The Government isn't making that up. Only reason the bonds were trading at decent values was that the market didn't think the Government would allow a default. And despite people rushing to blame FF for everything, it was FG and Labour whose pre-election mutterings drove down the price of these bonds and allowed pure speculators purchase them gambling that the Government would not allow a default despite what they said. So Enda Kenny and Co need to remember that next time they decide to open their mouths.
 
I think we'd only get away with this once. Once the new "buyer" in the market is identified, that being the Irish Government, I reckon the cost of these bonds would rise...
 
If the buyer of the bonds could be identified as the Irish Government/ECB/IMF why can't the owners of the bonds be identified now, they are saying that they have been sold many times and handlers won't say who the client is, why don't the Government/EMF/IMF use handlers as well. It seems that there is one rule for the tax payer and another for the private investor stating " the rule is that there are no rules " with the exception of the USA.
 
lyonsie said:
If the buyer of the bonds could be identified as the Irish Government/ECB/IMF why can't the owners of the bonds be identified now ...
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What difference would it make if the bondholders' identities were known? Would it become a matter of paying debts to persons of whom we approve (e.g. an Irish pension fund), and telling the rest to go whistle?
 
The identity of the beneficiary of the bond holders is important for transparency. It was the stated position of this Government that this type of bond holder would be burned, the original holders sold the bonds at a loss to investors who took a punt that the Government would renegue on this promise, or had they inside information ? And no we should pay our debts but we need to get the best deal possible for the citizen.
 
Firefly said:
I think we'd only get away with this once. Once the new "buyer" in the market is identified, that being the Irish Government, I reckon the cost of these bonds would rise...
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Absolutely right, but you wouldn't even need to identify the new buyer. Any purchasing of bonds on the open market would increase the demand and thereby increase the price. You might be able to buy some of the bonds at a discount, but the more you would buy the more the price would go up, thereby voiding the intention of the exercise.
It is not a case that the government could have gone out there and just bought the whole lot for a discount.
 
lyonsie said:
The identity of the beneficiary of the bond holders is important for transparency....
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Does it make one whit of difference, other than satisfying a somewhat prurient curiosity, whether we know the identities of the bondholders or not?

I'm all for transparency, but only where it is meaningful. If we seek to make everything transparent just because somebody shouts out the word, then reasonable rights to privacy are put at risk. Should the work of the Revenue Commissioners be transparent to the extent that you can see my tax returns? Should banking be transparent so that you can satisfy your curiosity about how much I might happen to own or to owe?
 
The horse has left....we repaid the bond so this sends out the message that future bonds will also be repaid...I imagine their prices rose instantly...
 
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