Bond blues

I don't really know a huge amount about the financial markets. I sometimes feel like the guy on the Financial Regulator ad who doesn't know what a tracker mortgage is. Well maybe I'm slightly further along the learning curve than he is but probably not by much.

I have been doing some research into bond yields over the last few days, trying to understand what is currently going on with regard to Irish Government bonds. Today, NTMA issued €1.5B in two sets of bonds - €500M of 4 year bonds at 4.767% and €1B of 8 year bonds at 6.023%. Both of these bonds have a coupon of 4% so plugging the figures into one of many online yield calculators I reckon that only €875M was paid into NTMA's bank account for the longer bond and about €485M for the shorter one.

So while it is correct to say NTMA shipped €1.5B in bonds, we the people only have €1.36B in cash and an annual interest bill of €60M to show for it as well as the requirement to pay back or roll over the €1.5B principal in the future. Of course the spin will be the over subscription to the issue, but you'd be mad not to grab a 6% return that is effectively guaranteed by the EU.

The other question of interest is who is actually buying these bonds. I strongly believe that a large portion of them are being purchased by Irish banks looking to bolster up their balance sheets. This source of this money is the bail out that the banks are getting from the Irish state and ECB at rates far lower than we are paying to borrow it back off them. Somehow it seems wrong that the public are being screwed repeatedly in this process. What is also galling is that part of this borrowing at 6% is being lent to Greece as part of their EU bailout at 5%. Again the Irish taxpayer is being taken for a ride.

Smarter economists are welcome to correct my maths and show me where I am getting this completely wrong.