Irish bonds climbed today in the wake of a new deal agreed by European ministers that will see the cost of Ireland's bailout fall.
World stocks hit a two-week high and the euro and oil prices rose after European leaders agreed on a package to rescue Greece that hopes to prevent the region's debt crisis from deepening. The emergency summit pledged yesterday to conduct a second bailout of Greece with an extra €109 billion of government money, plus a contribution by private sector bondholders estimated to total as much as €50 billion by mid-2014.
The annual cost of Ireland’s bailout will drop by up to €800 million after euro zone leaders agreed a cut in the interest rate on rescue loans.
Greek, Spanish and Italian bonds rose after officials drew concessions from Germany, the European Central Bank and investors for a twin-track strategy to support Greece and ensure its woes don't spread.
The yield on Ireland's two-year bonds, which opened at 19.188 per cent, tumbled more than 4 per cent to 14.851 per cent by 3.36pm, the first time they have fallen below 15 per cent since July 6th. The benchmark 10-year bond declined just under half a per cent to 11.897 per cent.
"These measures are welcome because they create the best possible conditions for Greece and other peripheral countries to put their houses in order and hence limit the risk of contagion," said Marco Valli, chief euro-area economist at UniCredit SpA in Milan. "Still, the market will continue to price some probability that troubled countries will not be up to the challenge."
The yield on Greece's two-year government bond, which rose above 40 per cent yesterday, has since plunged more than 100 basis points and was at 26.87 percent at 10.28am in Brussels.
Italian and Spanish bonds climbed for a fourth day, with the yields falling to 5.15 per cent and 5.52 per cent, respectively. Both exceeded 6 per cent last week.
The euro eased against the dollar as investors looked past the announcement of the rescue package for Greece to focus on how it will be carried out.
The euro had hit a two-week high of $1.4440 on electronic trading platform EBS but further gains were seen as limited, as analysts highlighted the risks to the deal being implemented quickly and questions over long-term debt sustainability.
"What you saw yesterday was a relief rally as the initial numbers that came out were better than expected," said John Doyle, strategist at Tempus Consulting in Washington. "Now we're looking for details on how effective the plan might actually be."
The euro was last at $1.43752, down 0.3 per cent on the day after jumping nearly 1.5 per cent yesterday. Despite easing, it was on track for its first weekly gain against the dollar since the trading week ended July 1st.
The Stoxx Europe 600 Index rose 0.2 per cent to 271.1 at 3.31pm in London. The gauge has rallied 1.6 per cent this week amid optimism that the new aid package will stop the sovereign-debt crisis spreading to the larger economies of Spain and Italy.
"The general view is that it appears to be a comprehensive deal that exceeded market expectations," said James Knightley, senior economist at ING Bank NV in London. "Consequently, we are seeing something of a relief rally. However, the underlying economic fundamentals remain concerning."
"We still have to calculate the contingent liabilities of the EFSF and finally the contingent liabilities of Germany from all
these rescue operations. But the markets are happy for the time being," said Kornelius Purps, strategist at Unicredit in
Munich.
The dollar held steady against a basket of major currencies. Efforts to avoid a US default were underway in Washington with Mr Obama and top lawmakers soughta last-minute deficit-reduction deal before the August 2nd deadline to raise the country's debt ceiling.
Congressional aides report that a compromise plan could include up to $3 trillion in spending cuts but might leave tax
reform for later.
The main obstacle remains the issue of tax increases that Mr Obama's Democrats demand and Republicans vehemently oppose.
Additional reporting: Reuters, Bloomberg
