Irish government bond prices hit record lows as European debt markets move ahead

Ireland’s ten year bond yield hit record lows again on Wednesday, trading late in the day at just over 0.4 per cent. The falls reflect a more positive trend in international bond markets and also some buying of Irish bonds following the latest GDP, despite international scepticism of the reported 26 per cent GDP growth rate.

Internationally, Germany’s 10-year government bond yield turned negative for the first time at an auction on Wednesday, fetching the lowest average real yield at auction on record for such paper at -0.05 per cent, the German debt office said.

Irish government bonds benefitted from the positive mood in bond markets with 10-year yields falling to just over 0.4 per cent. Owen Callan, senior analyst at Cantor Fitzgerald, said that Irish and other peripheral markets had benefited from more optimism about a rescue plan for the Italian banking sector. Concerns about this had pushed money into safe haven assets, but hopes of an agreement between Italy and the EU Commission on way forward benefited peripheral markets, including Ireland.

Ireland had also benefited from some international interest in its own right, Mr Callan said. While the GDP growth figures were met with scepticism both at home and internationally, investors still believe that the growth outlook is good, while some of the relocation of corporate assets to Ireland could also help to underpin the corporation tax base.

Bond markets remain generally strong, on the hope that interest rates will stay low for a prolonged period.The German Finance Agency, the federal government's debt management office, sold €4.038 billion of its new 0.00 per cent, 10-year Bund at the lowest price of 100.48 with a bid-to-cover ratio of 1.2.

“It’s the first time that a 10-year bund ( German government bond) fetched a negative yield during an auction,” a debt office spokesman said, adding that market liquidity for Bunds was very high and that investors were attracted by Germany’s top notch credit rating.

A backdrop of unprecedented monetary stimulus from the European Central Bank and mounting political risks in Europe, including Brexit, have boosted demand for German bonds - seen as one of the safest assets in the world.