Bond yields decline on bailout news

Irish Government bond yields fell today as the markets absorbed the news that the bailout of Anglo Irish Bank could cost the State up to €34 billion.

The Central Bank this morning said the total cost of stabilising the banking system would be around €45 billion, rising to almost €50 billion in the event of the worst case scenario hitting Anglo.

By 4.05pm, the benchmark 10-year Irish bond yield was at steady at 6.569 per cent, and the spread to the German bund was 429 points. The yield had opened at 6.7 per cent, before ticking higher to 6.724 per cent.

Bond yields have risen in recent weeks as international investors worried over the level of sovereign debt and the final cost of the bank bailout. The markets had sought certainty, which was finally brought this morning when the Central Bank revealed the final cost.

The National Treasury Management Agency has cancelled the remaining auctions this year, which were due to take place in October and November. Minister for Finance Brian Lenihan this morning said the NTMA would return to the bond market in 2011.

The euro fell the most in a week against the yen, fuelled by the Central Bank’s announcement and Moody's Investors Service downgrading of Spain's debt ranking.

Moody's lowered Spain's rating by one step to Aa1 from Aaa, citing the nation's "weak" economy.

Credit-default swaps insuring Ireland's government debt fell 0.5 basis points to 470, while contracts on Spanish bonds rose 2.5 basis points to 230.5, according to data provider CMA. Portugal declined 24 basis points to 416, Italy fell 2.5 basis points to 195 and Greece declined 20.5 basis points to 784.5.

Additional reporting: Bloomberg