The government is considering effectively wiping out certain classes of bank bond-holders for the first time after advice from fixed income experts and bank executives.


The move, which could come as soon as this week when Anglo Irish publishes first-half results, will involve the government not honouring coupon (interest) payments for holders of Tier 1 perpetual bonds in Anglo, which is now in public ownership. These bonds pay income in perpetuity, but do not have a maturity date.


The government is very keen to emphasise there are no plans to alter conditions for higher-up senior notes or any other types of subordinated bonds. The Department of Finance declined to comment this weekend.


The government is expected to cite bond conditions which allow coupon payments to be scrapped if payments would cause Anglo Irish to breach banking capital adequacy rules. It has been reported for several weeks that Anglo is in danger of breaching these rules.


On his recent visit to Paris, finance minister Brian Lenihan discussed the impact of ending payments for holders of perpetual bonds with leading fixed income experts. Many of them advised him it would be possible and the price of these bonds have already collapsed, in some cases down to 15 cent in the euro.