Signs of hope but we are not out of the woods yet

ANALYSIS:THE MARKET for Irish government debt is never dull these days.Tuesday was alarming. Wednesday was eerily calm. Yesterday saw those with steel nerves recover their appetite for Irish debt. Who knows what today will bring.

Yesterday started badly, with yields rising in early trading, but once the National Treasury Management Agency (NTMA) was bombarded with offers to buy its latest batch of freshly printed treasury bills, fears calmed and yields fell back significantly across the maturity range.

The NTMA sold €150 million of treasury bills due for repayment on February 14th, 2011. The average interest rate payable was down on two weeks ago (1.93 per cent, compared with 1.98 per cent). It also sold €250 million worth of bills maturing on April 18th, 2011. The average interest it offered investors was down too (to 2.19 per cent, from 2.35 per cent).

This is curious, and also positive for taxpayers. Despite yields rising sharply in the secondary market since early August (where investors trade bills with each other), they have been falling in the primary market (where governments sell securities to investors).

Despite this, and the very healthy demand for the bills, the NTMA sold just €400 million worth at yesterday’s auction. The agency had been aiming for between €400 million and €600 million. That it sold at the very lower limit of its range is likely to reflect the still very high cost of borrowing and the fact that that the agency’s cash position is healthy.

Fitch, one of the big-three credit rating agencies, yesterday published its bi-annual assessment of the government debt in the euro zone yesterday. The title of its summary, “Not out of the woods yet”, is apposite.

While it lauds Ireland for its “extraordinary fiscal self-discipline, it concludes that the volatility in the euro area government debt market is caused as much by fears about the future of the euro as it is by the fiscal positions of the weak countries. Neither concern is about to go away.

As mentioned in Thursday’s dispatch on the bond market, financial news channel CNBC was to broadcast from outside Anglo Irish Bank’s headquarters all day yesterday. Modesty then forbade your correspondent from mentioning that he was among the talking heads to be hauled before the station’s cameras. The reaction of passersby demands some mention, however.

As they had done all day, motorists honked and pedestrians harrumphed. If you think that’s bad, said the man from CNBC afterwards, you should see what they’re like in Budapest, referring to the penchant of temperamental Hungarians to vent spleen in an altogether more threatening fashion.

We continue to conform to our easygoing stereotype. Wouldn’t it be grand if the bond market were so laid back?