10-year Irish and Portuguese bond yields at new high

IRISH AND Portuguese bond yields tipped new highs yesterday as Greek prime minister George Papandreou’s confidence-vote victory failed to dispel contagion fears in the euro zone.

The yield on Irish 10-year bonds rose 30 basis points to 11.718 per cent yesterday. The previous record of 11.70 per cent was set on June 17th.

The two-year note yield reached a euro-era high of 13.25 per cent.

Meanwhile Portugal’s 10-year yields rose 21 basis points to an all- time high of 11.34 per cent.

Two-year note yields added 38 basis points to 13.60 per cent, also a record.

Attention now turns to whether Mr Papandreou can push through parliamentary approval next week of a €78 billion package of budget cuts to stave off the threat of default.

“The market is still wary despite the Greek confidence vote,” said Eric Wand, a fixed-income strategist at Lloyds Bank Corporate Markets in London.

“The austerity measures may have a much rougher ride getting through parliament. The market is a bit concerned that the situation hasn’t greatly changed, and the periphery is still vulnerable.”

A Dublin trader said investors were unlikely to buy the government bonds of any peripheral European country while Greece looked likely to “roll over” on its sovereign debt.

“People expect some kind of...change in Greece that will involve private participation,” he said.

“The big concern for the market is and has always been contagion to Spain.

“As opposed to watching Irish bonds, one should be very concerned about Spanish bond yields which are trading higher.

“Any further escalation in yields for Spanish bonds is a big problem for Europe.”

Another Irish broker said that a “massive game changer” was needed for bond spreads to narrow.

“Essentially, the markets are saying ‘you haven’t fixed anything yet’.”

He said trading in Irish bonds was fairly thin, and explained that without much volume yields could move around a lot.

The International Monetary Fund, contributor of a third of the bailout money for Ireland, Greece and Portugal, has warned European Union leaders that a failure to take decisive action on the debt crisis risked triggering “large global spillovers”.

Greek two-year notes dropped, erasing an earlier advance made after Mr Papandreou’s victory paved the way for the country to implement austerity measures needed to receive further aid.

Mr Papandreou reshuffled his cabinet and sought the approval of the chamber after fending off a revolt within his socialist Pasok party last week.

Bill O’Neill, chief investment officer of Merrill Lynch Wealth Management, said yesterday that he does not see an “imminent” situation where a Greek default is likely.

He predicted that a three-year programme will be put in place to fund Greece until 2014. – (Additional reporting: Bloomberg)

Portuguese rescue bonds €3 billion sold by EU bailout fund

THE EUROPEAN Union’s bailout fund sold €3 billion worth of Portugal rescue bonds in its second debt offering this month.

The European Financial Stability Facility (EFSF) notes due December 2016 were priced to yield six basis points more than the benchmark swap rate. That is the same spread the EFSF offered on 5½-year notes it sold in January. The EFSF has an AAA rating and has raised €10 billion to fund bailouts of Portugal and Ireland. “Investors are focused on safe havens” and the EFSF bonds “enjoy the guarantee of Germany, France and other core governments,” said Christophe Herpet, a senior portfolio manager at AXA Investment Managers

The EFSF hired BNP Paribas, Goldman Sachs and Royal Bank of Scotland to manage the sale. The banks received over €7 billion of orders in two hours, EFSF said in the statement. – (Bloomberg)