Long-term interest rate on Irish government debt rises sharply

The long-term interest rate on Irish government debt has risen sharply to its highest level in more than six years as international bond markets faced a heavy sell-off.

As fears of higher inflation increase, government debt markets sold off on both sides of the Atlantic, pushing the interest rate sharply higher.

Ireland’s 10-year interest rate rose to 1.256 per cent Tuesday , the highest since the end of 2015 and an increase of almost 0.14 points on Monday’s level.

Like other international bond markets, Irish prices have dropped as fears rise of higher inflation and increases in central bank interest rates. Ireland’s 10--year interest rate has risen by a full percentage point since the start of the year.

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Higher long-term interest rates will push up the cost of government borrowing after a period when borrowing at or close to zero interest rates has been a huge benefit to the exchequer.

It will also start to feed through to longer-term fixed rates to Irish borrowers and indicates that markets now believe the European Central Bank will start to increase interest rates later this year and into 2023.

The gap between German bond rates and those of other EU countries is also widening. Irish 10-year bond rates were 0.65 of a point above German levels on Tuesday, compared to a gap of 0.4/0.5 of a point through most of last year.

Elections

A widely watched interest rate spread between French and German debt widened to a two-year high on Tuesday as investors worried about the risks of far-right candidate Marine Le Pen winning this month's presidential elections over incumbent Emmanuel Macron.

French government borrowing costs surged, with yields on 10-year debt up 0.1 of a percentage point to 1.133 per cent .

The sell-off rippled through other European bond markets, with Germany’s 10-year bond yield, the euro zone benchmark, rising to over 0.6 per cent.

Already spooked by soaring inflation, the prospects of more sanctions against Russia also unnerved investors. Moscow is facing further Western sanctions in retaliation for civilian killings in northern Ukraine. – Additional reporting, Reuters