Are Irish Government Bonds A Good Portfolio Option?

Over the last few years the short term investment landscape has changed significantly for Irish savers. Since the mid 2010s interest rates fell sharply and banks have been paying little to nothing for money on deposit. However since covid-19 the ECB has been raising interest rates to curb inflation. Unfortunately, Irish banks haven’t passed much of this onto Irish savers.

This has led to a number of other options becoming popular in recent years for Irish savers and in particular Irish corporate investors, who want to get some kind of return for their short term savings while still protecting their capital from short term market volatility.

One such option is investing in Irish Government Bonds. These have become quite attractive in
recent years as:

1. You receive your agreed return and capital back on the maturity date unless the government defaults.
2. Irish Government bonds are rated as AA.
3. Capital Growth on Irish Government Bonds is exempt from Capital gains tax for Irish Residents
4. You can withdraw your funds before the maturity date (however the value may be less than your initial investment amount if you withdraw before the maturity date)

What are Irish Government Bonds?

Investing in an Irish Government Bond is essentially lending the Irish Government money with a promise that they will give it back to you with interest after an agreed period of time.

For example, the May 2027 Irish Government Bond (maturing on the 15th May 2027) priced on 17th April at 92.52 and will you give you a total annual yield of c. 2.8% (0.2% of which is a coupon received annually and the remaining will be capital growth received at maturity). As an Irish Investor (both Irish resident individuals and companies), the growth is tax free, whereas the trivial annual coupon amount is subject to income tax.

Let’s look at an example:

1. You invest €500,000 in the 2027 Irish Government Bond.
2. After all fees, you receive back circa €528,040.55 in May 2027 as well as an annual coupon of €1,729.84 per annum between now and May 2027.
3. The c. €28,040.55 growth you have received is Tax Free. The €1,729.84 per annum is subject to Income Tax.
4. This represents a 1.79% Annual Net Return on your cash.

What Next?

Irish Government Bonds could form part of your portfolio. However, you should talk to your Private Client Manager to see if they are an appropriate investment structure for your portfolio. Never do anything without seeking formal, professional advice.

Cian Callaghan

Private Client Manager