Irish borrowing costs 'ridiculous'


Central Bank governor Patrick Honohan has described Irish bond market spreads as a "setback".

Irish bonds spreads widened after the European Commission approved the Government's move to raise the level of capital it can inject into Anglo Irish Bank.

"The spreads are a setback for our hopes of a narrowing to reflect the fiscal credibility of the country," Mr Honohan told the Daily Telegraph.

"I don't look at them every day but at this level they are ridiculous."

Bond spreads yesterday hit the highest level in a month, reaching almost 300 basis points at one point, and the yield on Irish 10-year bonds broke through the 5.4 per cent mark, while German 10-year bund yields fell to a record low.

They closed just below 289 basis points, and this morning were at 288 basis points.

Mr Honohan also criticised Anglo in his interview, describing the bank as "egregious, in a league of their own”.

The National Treasury Management Agency (NTMA) said today that Ireland's borrowing costs rose at an auction of €1 billion of six- and eight-month bills.

The NTMA sold €500 million of securities due February 14th, 2011, at an average yield of 2.458 per cent. That compared with 1.367 per cent at a July 22nd auction of the same bills. Some €500 million of securities due April 18th, 2011, at an average yield of 2.81 per cent, compared with 1.8 per cent on July 22nd.

Bloomberg today reported that European central banks had bought Irish government bonds today, citing two traders who witnessed the transactions.

The central banks bought Irish debt with maturities no longer than two years, the people said, under condition of anonymity because their trading is private. Buying was light, both traders said.

A bond auction will take place next Tuesday.

NCB stockbrokers said the bond spread has "gone too far".

"As we stated yesterday, the sooner the Anglo issue is cleared up and clarity is given on the final capital requirement by the State, the sooner the focus can shift solely to the underlying state of the Governments finances and the commitment to reduce the deficit to below 3 per cent by 2014," economist Brian Devine said in a statement.

"Nonetheless, we believe that the spread has gone too far relative where it was in May when Greece was in real danger of a liquidity crisis and there was a massive aversion to Euro assets in general."

Additional reporting: Bloomberg