Bond yields hit new high

 

Irish 10-year bond yields rose above 9 per cent today after LCH Clearnet increased the cost of trading the country's securities for the third time in as many weeks.

At 3.07pm, the yield was at 9.053 per cent, up 0.189 per cent. The spread to the bund was 634.7 points.

"Relief in the European bond market on the back of Ireland's decision to resort to the EU bailout fund has turned out to be short-lived," Ulrich Wortberg, a fixed-income analyst at Helaba Landesbank Hessen-Thueringen in Frankfurt wrote in a research report today. "Risk premiums are heading higher."

NCB economist Brian Devine said the the interest rate could be between 5.23 per cent and 5.85 per cent, depending on the length of the term.

"Our own conclusion is that Ireland would currently receive three-year money at a rate of 5.23 per cent and five-year money at a rate of 5.85 per cent. In comparison, it is worth noting that the Irish January 2014s are currently yielding 8.1 per cent," he wrote in a note.

"We believe that the loans will be concentrated in the 2013-2018 range over the life of any agreement given our reading of the EFSF documentation and the maturity profile of Irish debt."

The increase in margin for Irish trading will be based on outstanding positions at the close of business today, LCH said in a statement on its website today.

LCH said on November 10th it would add a 15 per cent extra margin requirement to Irish bond trades through its RepoClear service. On November 17th, it raised the extra margin to 30 per cent of net positions.

Spanish 10-year yields were 12 basis points higher at 5.18 per cent, while similar-maturity Italian yields were five basis points higher at 4.39 per cent.

The yield on the 10-year German bund, Europe's benchmark government security, was less than one basis point lower at 2.70 per cent, while two-year yields slipped two basis points to 0.94 per cent.

The euro weakened for a fourth straight day, trading at $1.3332, from $1.3335 yesterday.

Spain's funding for the rest of the year remains "comfortable," helped by better-than-forecast revenue and a shrinking budget deficit, and the government doesn't expect problems tapping financial markets going forward, said deputy finance minister Jose Manuel Campa.

Spain, which saw its borrowing costs surge to an eight-year high yesterday, has two more bond auctions scheduled this year. The Treasury will sell three-year debt on December 2nd, and 10- and 15-year securities on December 16th. The government has about €8 billion still to raise this year, according to the state borrowing plan.

"We have increased and front-loaded our fiscal consolidation," Mr Campa said in an interview at the finance ministry in Madrid late yesterday. "The revenues are actually above budget, so our financial conditions are better than we anticipated, so our financial position in terms of funding for the remaining month and a half is quite comfortable."

Additional reporting: Bloomberg