MARKETS:ATTENTION WILL focus on bond markets today, following yesterday's publication of the Government's four-year budgetary and economic plan after markets closed.
Bond yields – the amount investors demand to hold Irish debt – rose ahead of the announcement for the eighth successive day, the longest such streak in two years. Yields touched 7.81 per cent before falling back to 7.66 per cent, another record.
The spread over German bunds – the extra amount investors demand to hold Irish debt instead of the benchmark German bunds – reached a record 526 basis points (5.26 percentage points), while the cost of insuring Irish debt against default also hit a new high.
Barry Nangle, head of bonds at Davy Stockbrokers described the state of affairs in the market for Irish bonds as “a buyer’s strike”.
“It seems the ECB is the only buyer in the market,” he said.
Not even reassurance from the IMF helped Irish debt. Caroline Atkinson, director of external relations, said in Washington that the IMF had not been in contact with Ireland regarding the possible provision of financial help.
Ireland’s authorities “have been taking important fiscal measures”, she said at a press conference. “We think what’s important is the implementation of that adjustment, which will support the underlying fiscal position,” she added.
Brian Devine, an economist at NCB Stockbrokers, said yesterday’s announcement may do little to lower Ireland’s borrowing costs. “There is no doubt that Ireland is serious about tackling its fiscal deficit . . . the market doesn’t seem to care though – events have surpassed the unveiling of a credible, conservative multi-year budget.”
Most analysts agreed yesterday’s news contained few surprises, with the key question now the detail of how the €6 billion savings outlined would be achieved.
Ahead of publication of the outlook, Goldman Sachs croup chief European economist Erik Nielsen said the next four weeks were “likely to be messy for Ireland”.
There is a “real risk” the Government won’t be able to get the budget on December 7th passed, Mr Nielsen said in a note. Still, Ireland “is fully funded through mid-2011, so we are not talking about an imminent liquidity crisis”.
In a note to clients, Davy’s said the risk that Irish bond spreads won’t fall substantially by the new year “has grown considerably”.
“Political uncertainty increased considerably this week with the resignation of Jim McDaid” and the announcement of an election to fill a vacant seat in parliament by the end of the month, it said.
Ireland’s debt woes were not helped by a decision by the Russian finance ministry to remove Ireland and Spain from a list of countries in which Russia’s $130.9 billion sovereign wealth funds is permitted to invest.
The aversion towards debt of the so-called peripheral European countries intensified yesterday as markets responded well to the US Federal Reserve’s announcement of further quantitative easing. – (Additional reporting: Bloomberg)
