Greek troubles hit Irish bond spreads


The spread between Irish and German bonds widened today, as the fallout from Greece's downgrading affected the market.

The spread is now 1.8 per centage points, or 182 basis points, and remains the second highest in Europe.

Traders blamed the fallout from Greece's recent troubles, saying it acted as a "contagion" for the market. Investors feared a domino effect, they said, if Greece does default.

Greece's credit ratings were downgraded to the lowest level in the euro zone yesterday, amid fears over its deteriorating public finances. Fitch cut ratings on Greek debt to BBB plus, with a negative outlook, the first time in 10 years a leading ratings agency has given Greece a rating of below A grade.

Fitch said the downgrade “reflects concerns over the medium-term outlook for public finances, given the weak credibility of fiscal institutions and the policy framework in Greece, exacerbated by uncertainty over the prospects for a balanced and sustained economic recovery”.

One Dublin trader noted that the Budget, due later today, may have a further impact on the spread between Irish and German bonds, although it would depend on the actions taken by Minister for Finance Brian Lenihan.

The spread between Irish and German bonds is down from 210 points in July and a high of 282 points this year.

Dublin's Iseq index of shares was in positive territory this afternoon prior to the Budget annoucement, climbing 24 points to 2,896.38.