Ireland’s borrowing costs stay near record lows

Yield on 10-year bonds just 0.2% higher than last week’s all-time low

European Central Bank president Mario Draghi commented last week that policymakers were prepared to add economic stimulus next month, fuelling the so-called yield grab. Photograph: Reuters/Francois Lenoir

European Central Bank president Mario Draghi commented last week that policymakers were prepared to add economic stimulus next month, fuelling the so-called yield grab. Photograph: Reuters/Francois Lenoir

 

Ireland’s long-term borrowing costs remained near record lows yesterday on foot of a possible ratings upgrade from Moody’s later in the week and speculation that the European Central Bank (ECB) may cut interest rates next month.

Last week the yield on 10-year Irish bonds sank to an all-time low of 2.64 per cent, pushing the State’s borrowing costs below those of the UK for the first time in more than five years.

Investors are buying bonds of peripheral euro zone states amid signs the region’s debt crisis may be over.

The so-called “yield grab” was fuelled last week by comments from ECB chief Mario Draghi that policy-makers were prepared to add economic stimulus next month if needed, and by Moody’s decision to upgrade Portugal’s credit rating.

The agency is scheduled to review Ireland’s debt rating on Friday.

Record low
In trading yesterday the yield on 10-year Irish notes hovered around 2.66 per cent, marginally above last week’s record low, but still below its UK gilt equivalent. At the peak of the debt crisis in 2011, yields on Irish 10-year bonds were close to 15 per cent.

Davy analyst Donal O’Mahony said Moody’s decision to upgrade Portugal’s credit rating was the latest indication of an “inflecting ratings cycle” for euro area sovereigns.

“This year to date has witnessed the vaporisation of negative outlooks amongst all the agencies, along with selective positive outlooks and/or ratings upgrades.

Ireland remains in the vanguard of this incipient EZ [euro zone] sovereign ratings uptrend, justifiably so in light of its successful (and substantially completed) macro-stabilisation efforts, peerless supply-side economic potential and vastly improved debt-servicing burden.”

Funding requirements
Positive market sentiment is also prompting the front-loading of peripheral issuance, with Ireland, Italy and Spain all well advanced in their funding requirements for the year.

Last week’s €750 million auction of 10-year debt by the National Treasury Management Agency (NTMA) brought it to 81 per cent of its full-year funding target of €8 billion.

NTMA yesterday announced a €500 million auction of three-month notes will take place on Thursday.