Government bonds narrowed losses today as the fallout from Budget 2010 impacted the markets.
The Budget announced yesterday by Minister for Finance Brian Lenihan delivered the promised cuts, but the spread between Irish and German bonds earlier widened to 196 basis points. However, over the course of the day, the spread narrowed to 188 points.
Analysts said the Budget, which cut €4 billion from public expenditure, was only the beginning of the process, and further reductions would be necessary in public spending and deflation to increase the country's competitiveness.
Ireland's bond spreads have also been hit by the fallout from Greece's debt troubles, which saw the country's credit ratings downgraded to the lowest level in the euro zone earlier this week, amid fears over its deteriorating public finances. Fitch cut ratings on Greek debt to BBB plus, with a negative outlook, the first time in 10 years a leading ratings agency has given Greece a rating of below A grade.
In yesterday's Budget, Mr Lenihan introduced pay cuts for the public sector, reduced social welfare and cut child benefit in a bid to rein in the deteriorating public finances.