IRELAND HAS distanced itself from the debt crisis in Greece and other southern euro zone states in the eyes of investors, with Irish bonds making substantial gains on the markets yesterday.
The yield on 10-year Irish government bonds closed below 8 per cent for the first time since the EU-International Monetary Fund (IMF) bailout and is now back to levels last seen in October 2010.
The fall of almost 1 percentage point in the yield on Irish debt yesterday reflects a growing confidence in the Government that it can convince international investors of the Irish economy’s ability to recover.
Taoiseach Enda Kenny said Ireland’s international reputation had improved radically in recent months, but he cautioned that the State still has “a very long way to go” before economic sovereignty can be restored.
“Of all the countries in Europe at the moment where there’s economic turmoil, Ireland’s perception and reputation has changed radically in the last six months,” Mr Kenny said, citing the fall in bond yields and the lower interest rate being charged on borrowings from the “troika”.
“The storm has shifted to Club Med,” said Donal O’Mahony, a global fixed-income specialist at stockbrokers Davy.
He said the gains made by Irish bonds in recent days and since the rally began in July were “all the more impressive” given the ongoing uncertainty over Greece.
Private sector involvement in a restructuring of Greek debt “is being seen increasingly as a Greece story”, he said, with fears of similar writedowns for bondholders of other nations’ debt having now evaporated.
The reduction in the bailout financing costs announced in July was “a major shot in the arm” for Ireland, he said, having slashed the State’s interest bill at a stroke.
Mr O’Mahony also cited the growth in gross domestic product (GDP) in the second quarter of the year as evidence that Ireland’s fiscal headwinds are slacking off.
He described the better-than-expected growth in the economy as a “positive shock” that would help convince markets of the Irish economy’s flexibility.
“All of a sudden we’re looking so much more likely in the eyes of the market that we will be able to repay the debt.”
Total returns on the Irish government bond market over the past year exceed that of Germany, the US and “safe haven” markets, Mr O’Mahony said.
Because of its pipeline of funding from the “troika”, any Greek default would only hurt Ireland “cosmetically”, he added.
“There’s no risk of Ireland not being able to finance itself because markets shut down on us as a result of a catastrophic event.”
A full-scale euro zone crisis would result in a spike in short-term bond yields, but this would have no practical bearing on the financing of the State and would likely be seen as a buying opportunity by bond investors, Mr O’Mahony indicated.
If a euro zone calamity sparked a global recession, Ireland, as a small open economy, would be affected because of its dependence on exports for economic growth, he noted.
Speaking at an event to mark the 25th anniversary of homeless charity Focus Ireland, Mr Kenny said the Government was “intent on complying” with the conditions agreed with the EU and the IMF when it availed of the bailout.
“The job of Government in fulfilling its mandate is to sort out the public finances, be able to get back to the bond markets ourselves and to hand our country back to our people who are in charge of our own economic sovereignty,” Mr Kenny concluded.
