Ireland’s cost of funding rises in market turmoil

Volatility on Irish bonds was the highest in the euro area today, followed by those of Portugal and Greece, according to measures of 10-year debt, the yield spread between two- and 10- year securities and credit-default swaps.

Ireland’s 10-year yield increased 23 basis points to 1.93 per cent and the rate on equivalent Portuguese bonds jumped 42 basis points to 3.70 per cent.

Meanwhile Greece’s government debt was back in the spotlight with investors are looking for the exit. As the four-day rout in Greek bonds sent yields to the highest since January, the selloff started to infect nations from Ireland to Portugal and even larger countries such as France.

In Spain, a debt auction fell short of the government’s maximum target, and European stocks extended their longest losing streak since 2003. Only German bunds were sheltered from the slump, with demand for the safest assets pushing their yields to a record low.

“We are in a typical flight-to-quality environment with substantial losses in stock markets and wider spreads,” said Patrick Jacq, a fixed-income strategist at BNP Paribas SA in Paris. “The Spanish auction suffered from the environment, not from domestic reasons. It’s the market environment which is not favorable.”

Greece’s 10-year yield jumped 109 basis points, or 1.09 percentage point, to 8.94 per cent at 12:46 p.m. London time, the biggest increase since July 2012. The rate touched 8.995 per cent, the highest since Jan. 30.

Spain sold a combined €3.2 billion of bonds due in October 2024 and October 2028, versus a target of as much as €3.5 billion. The Madrid-based Treasury allotted €2.2 billion of the 10-year securities at an average yield of 2.196 per cent.

Greek reforms

Markets slid this week after euro-area finance ministers clashed with the nation's leaders over their plan to leave their safety net, sparking concern that Greece won't be able to finance itself at sustainable rates without the support of its regional partners. The lack of supervision may lead to the country backtracking on reforms agreed with the European Union and the International Monetary Fund. "Whether that's a bellwether for more problems to come or not, I'm doubtful of, but we certainly saw the periphery sell off," Andrew Wilson, Goldman Sachs Asset Management's chief executive officer for Europe, the Middle East and Africa, said in an interview with Bloomberg Television's "On The Move" with Jonathan Ferro, referring to the slump in Greek bonds yesterday. "It was a flight to quality, it was a bit of a scary story for a while there and I think that's all it's reflecting."

Greek bonds have lost 17 per cent in the past month, cutting their return this year through yesterday to 9.9 per cent.

Bloomberg