HAS the bubble burst for Irish equities and bonds? After the recent strong bull run, the markets slipped back this week, mainly on profit taking and in line with falls on international markets.
Some of the fizz went out of the Government bond market as the level of trading thinned through the week. Trading in bonds fell back from the £1 billion a day level seen in recent weeks.
While the "tired but happy" market makers of recent weeks may have got some respite, the question now is whether convergence trading will resume in coming weeks.
International bond markets were suffering from "volatility and fatigue" during the week and the Irish market was no different, one trader commented. The situation for Irish bonds is complicated by an apparent stalemate between the market and the Central Bank over interest rates on the money market.
The market feels there is scope for lower interest rates while the Bank has clearly signalled that it does not want lower rates. At the same time, it does not want the pound to go higher against the deutschmark. The Central Bank was in the market again this week selling pounds to stop the currency rising. Most traders want the Central Bank to allow the pound to rise and find its own level on foreign exchange markets.
Any further widening of the interest differentials between Irish and German bonds is likely to lead to a renewed bout of convergence buying by foreign investors. They have been attracted into Irish bonds on the expectation that prices will have to rise to German bund levels if Ireland is in the first wave of EMU members.
The extraordinary level of trading in recent weeks resulted in bond yields plunging continuously and a fundamental shift in the ownership structure of Irish bonds to foreign investors.
Weaker bond markets fed through to the equity market which came off recent highs.
The call by Credit Lyonnais chairman Mr Jean Peyrelevade for more state funds for his troubled bank led to renewed speculation about the future ownership of Woodchester Investments.
Credit Lyonnais owns 53 per cent of Woodchester which produced strong interim results a few weeks ago. Chairman Mr Craig McKinney has said that if Credit Lyonnais had to sell, there would be no shortage of takers.
After the recent strong run the shares slipped back, closing 7p down on the week at 210p.
Corporate news was thin on the ground. After having to increase its offer for the New Zealand Wilson & Horton group, Independent closed 13p down on the week at 325p.
AIBIM seems to have been doing some housekeeping recently. This week the fund managers sold 2.1 million Hibernian shares to reduce its stake to 11.6 per cent six months ago AIBIM owned more than 17 per cent of Hibernian.
IAWS was well bid at 171p ahead of results next week which are expected to be strong.
