Irish bond market may turn volatile after initial subdued reaction

The subdued reaction by investors in Irish bonds to Brexit may give way to some volatile trading over the coming days, according to analysts at Cantor Fitzgerald.

The keenly-followed yield, or market rate, on Ireland’s 10 year bonds rose 0.06 percentage points to 0.83 per cent on Friday before falling back to 0.79 per cent in early Monday trading. However, the yield differential, or spread, between the Irish and German 10-year bonds has widened to 0.86 per cent from 0.67 per cent on Thursday evening, before the referendum polls closed.

"The Irish relative value spreads to the core [euro zone countries] and semi-core closed [ON FRIDAY]below the peak levels two weeks ago, at the heights of the pre-Brexit volatility, suggesting the likelihood of further widening in the sessions to come," said Ryan McGrath, head of fixed-income strategy at Cantor Fitzgerald in Ireland.

Mr McGrath said the “strangely subdued” reaction on the Irish bond market to Brexit so far suggests most investors are digesting the impact of the UK vote and are “reluctant to participate in a knew-jerk reaction.”

However, he said that the “absence of a strong mandated stable government [IN IRELAND]will be acutely felt over the coming months,” which could add to political risk.