Investors flooded into safe-haven US and German government bonds and fled equities worldwide today following mixed US and weak European economic figures.
Peripheral markets in Europe were the worst hit. In Dublin, the Iseq was done 3.1 per cent this afternoon, one of the steepest one-day falls in recent months.
European and US stock markets in general were down about 1 per cent, erasing early gains. The MSCI world equity index also fell 0.8 per cent.
After hitting a record low of 2.61 per cent this morning, Ireland’s bond yields jumped back to nearly 3 per cent this afternoon.
Bond prices in Spain, Italy and other peripheral European nations fell sharply, erasing early gains. Those markets were rattled by comments from Slovak prime minister Robert Fico, who said Russia’s Vladimir Putin told multiple European states that Moscow will not supply gas to Europe as of June 1st if Ukraine does not pay its bills.
Yields on benchmark 10-year US Treasury notes fell as low as 2.47 per cent, lowest since October 30th. The US bond market earlier rallied in tandem with Europe's, bolstered by weak euro zone growth that further cemented expectations the European Central Bank will lower rates in June.
Up until today, investors have been buying up government debt amid signs the European Central Bank is gearing up to announce a fresh stimulus package next month.
Yesterday, sources told Reuters news agency that an ECB rate cut next month was “more or less a done deal”.
The yield on 10-year Irish bonds sank to an all-time low of 2.61 per cent this morning, only marginally above government borrowing costs in the UK and the US.
The spread, or difference, between German bonds of a similar maturity has also fallen by nearly 90 basis points to 1.26 per cent in the last 12 months.
At the peak of the debt crisis in 2011, yields on Irish 10-year bonds were close to 15 per cent.
Postive sentiment towards Ireland was also being fuelled by an expected ratings upgrade from Moody's on Friday.
The ratings company restored Ireland’s investment-grade rating in January and last week raised Portugal’s rating.
"We think a rating upgrade for Ireland is more likely than not, given the generally bullish view Moody's seem to have right now on the euro zone," said Owen Callan of Danske Bank.
Nonetheless, rival rating agency Fitch yesterday claimed Irish mortgage arrears had accelerated in the first quarter of 2014, rising to a record 18.4 per cent, up from 16.7 per cent last year.
The finding ran counter to the latest official figures from the Central Bank, which indicated mortgage arrears of three months or more had declined for the first time since the property crash.
"Some investors may scratch their head about valuations for Ireland," Rainer Guntermann and David Schnautz, analysts with Commerzbank AG, wrote in a note to clients this week, adding the economic backdrop was "mixed."
The National Treasury Management Agency (NTMA) raised €500 million in three-month notes today.
Total bids received amounted to €1.77 billion which was 3.5 times the amount on offer, the NTMA said.
Taking advantage of the positive market for government debt, the NTMA has front-loaded most of its borrowing requirement for this year.
Additional reporting by Reuters