Bonds gain ground after Tietmeyer's comments

The Irish Government bond market has gained ground in the wake of this week's comments by the Bundesbank president, Dr Hans Tietmeyer, who has put the issue of a possible pound revaluation back on the agenda. Dealers reported steady foreign buying of bonds, with investors now less fearful of another wave of selling hitting the Irish currency.

Also helped by recent buoyancy in international markets, Irish bond prices rose again and yields - long-term interest rates - fell. The yield on the benchmark five-year bond fell yesterday to close at 5.680 per cent, down from 5.732 per cent the previous day. On Wednesday evening, before Dr Tietmeyer made his comments, the five-year yield was 5.826 per cent.

Longer-term yields also fell, with 10-year yields at 6.270 per cent, compared to 6.427 the previous day.

Analysts believe the pound will also be supported by Dr Tietmeyer's comments. He told journalists in Frankfurt that if ERM central rates were to be used to calculate the conversion rates for the single currency, a revaluation of one currency's ERM central rate would be possible. This was taken by market analysts as an indication that the possibility of a pound revaluation has arisen at European level and that the Bundesbank would not oppose such a move.

The pound rose yesterday on the markets in tandem with sterling strength. It ended at DM2.6812, up from DM2.6665 the previous evening. Against sterling, the pound closed largely unchanged at 91.82p.

It is likely that the Government will not want to be rushed into a revaluation move for fear that a subsequent collapse in sterling could leave the pound exposed. In a comment on Dr Tietmeyer's remarks yesterday, Dr Dan McLaughlin of Riada stockbrokers said: "There is no immediate need for the Irish authorities to take action and we still expect no change in the pound's central rate this year." The balance of the argument supports a "wait and see approach" as sterling or the deutschmark could both swing sharply in the months ahead, he said.

However, reflecting the desire of the export lobby that the pound not enter monetary union at too high a rate, the Irish Exporters' Association (IEA) has reiterated its opposition to a revaluation. Such a move would have a "very serious impact on our competitiveness", according to the IEA's chief executive, Mr Colum MacDonnell. The present strength of the pound in the ERM is having a negative impact on exporters' profit margins, he said. Exports to Continental Europe in the first three months of the year were 5 per cent down on the same period last year, he said.

Revaluing would be an "own goal" against exporters and "any such suggestion has to be promptly dismissed by the Government", he added.