G20 concern over Irish debt as bond yields pass 9%

 

THE RELENTLESS pressure on Irish sovereign bonds showed no sign of abating yesterday, as Irish bonds fell for a 13th consecutive day, pushing yields past 9 per cent, more than 650 basis points higher than the equivalent German bond.

Last night the rating agency Moody’s said it was awaiting the release of Ireland’s four-year fiscal plan later this month to decide whether to downgrade the country’s credit rating.

“We intend to conclude this review in the course of December,” a Moody’s spokesman said.

A possible rating downgrade could send Ireland’s debt spreads even higher.

Ireland’s public debt woes forced their way to the top of the agenda at the G20 meeting in Seoul when European Commission president José Manuel Barroso said the European Union was ready to bail Ireland out “in case of need”.

“In case of need, the EU is ready to support Ireland,” Mr Barroso said.

The meeting of the world’s biggest industrialised nations is looking at ways to boost the fragile global recovery in the aftermath of the 2008 financial meltdown, but Ireland’s plight has been a major talking point at the summit.

“We have all the necessary instruments in place now to support Ireland if necessary,” Mr Barroso said. “We are monitoring the situation in Ireland on a permanent basis.”

He added that the European Commission fully supported the Irish Government’s efforts to scale back the country’s deficit.

Minister for Finance Brian Lenihan yesterday said the rise in yields was due to continuing uncertainty surrounding European sovereign debt.

“The bond spreads are very serious and there is international concern throughout the euro zone about that,” he said.

Fears that Ireland would need a European bailout proliferated in international media reports yesterday, as bond yields moved ever-higher.

A research report from Goldman Sachs in London said that a bailout of Ireland through the European Financial Stability Facility would resolve market tension and would not lead to contagion. Such a move “may mark a resolution of ongoing European Monetary Union sovereign tensions”, it said.

As sovereign debt yields continued to rise, Irish banks became the target of selling yesterday, with the cost of insuring the bonds of Irish banks soaring.

Mr Lenihan said that as regards to the banks, “the governor [of the Central Bank] and the [Financial] Regulator are confident that they have identified the exposures in the system and recommended the best capital provision for them”.

In London, Royal Bank of Scotland sank 2.7 per cent, to 41.02p, its lowest in four months, over concerns about the bank’s exposure to Irish debt.

The bank has £42 billion in loans to the Irish market primarily through Ulster Bank and holds approximately £4.2 billion of Irish government debt.