Irish Government bonds hovered below a record high this afternoon as investors continued to shun the debt of so-called peripheral nations on concern banks in the region may require further aid.
By 3.14pm, yields on 10-year bonds were 6.706 per cent, down from an earlier high of 6.79 per cent, The spread between Irish and German bonds was 446.4 basis points.
The yield on Irish Government bonds has risen in recent weeks as investors remain concerned about the level of sovereign debt and the cost of the bank bailout.
EU economics commissioner Olli Rehn has said the Government should have no need to seek emergency financial aid from the EU and the International Monetary Fund (IMF) as it battles to regain market confidence in its economic plan.
However, he wants Minister for Finance Brian Lenihan to quickly set out specific budget and reform measures to achieve billions of euro in savings in the next four years.
As the Government faces into a difficult budget for 2011 with borrowing costs at record levels, the commissioner said the immediate adoption of measures for 2012, 2013 and 2014 would provide clarity to the markets.
Responding last night to a series of written questions from The Irish Times, he said the Anglo Irish Bank rescue will be reflected in a high budget deficit this year. "This will be a one-off effect and the deficit for next year will be much lower," he said.
“Resolving Anglo Irish Bank is undoubtedly a very costly operation. It will have a significant impact on the Irish public finances. On the other hand, it is very important to resolve the problem of Anglo and so calm markets.”
Mr Rehn expressed confidence in the power of the Government to tackle effectively this problem and said the cost to taxpayers of inaction over the banks would have been “very much higher”.
Amid mounting concern in Brussels at the negative market reaction to the Anglo debacle, his remarks come a day before the Government discloses a new estimate for the cost of rescuing the bank.
German bund yields touched the lowest in three weeks as concern that some nations in the euro area may struggle to control their deficits maintained support for the region's safest fixed-income assets.
Portuguese bonds led losses on so-called peripheral-nation debt as the country's politicians worked to reach agreement on the 2011 budget, while unions were due to protest in 12 countries today to fight government austerity measures.
German two- year note yields rose as the European Central Bank said it would lend banks less money than some analysts estimated.
"Credit risk is absolutely dominating the market," said Marcel Bross, an interest-rate strategist at Commerzbank AG in Frankfurt. "It's weighing on the spreads of these countries, and it's going to keep them from tightening sustainably. Bunds are the safe haven and should keep benefiting here."
The 10-year bund yield was little changed at 2.25 per cent as of 2.41pm in London after earlier falling to 2.22 per cent, the lowest since September 8th. The 2.25 per cent security maturing in September 2020 fell 0.07 to 99.97.
The Portuguese 10-year bond yield rose 1 basis point, or 0.01 percentage point, to 6.52 per cent, widening the difference in yield, or spread, with benchmark German bunds to 437 basis points.
Additional reporting: Bloomberg