BONDS:DEBT MARKETS fail to be convinced that Ireland's rescue package will stem the euro zone debt crisis.
Despite strong statements by France’s budget minister yesterday morning that the Irish financial package would prove “sufficient and effective” in reassuring financial markets and would “form part of the absolute determination of France and Germany to save the euro zone”, investors were underwhelmed.
While bond yields fell in early trading, the now-familiar pattern resumed by mid-morning, with the yields on most euro zone debt rising.
Similarly, the rally in financial stocks failed to lift European stock markets, which saw their lowest close in nearly seven weeks.
Spain, and particularly Portugal, continued to see the brunt of the sell-off in sovereign debt.
The yield on both countries’ 10-year bonds rose throughout the day.
The interest on Spain’s 10-year bond increased 26 basis points to 5.48 per cent at one stage – the highest since 2002.
The interest on Portuguese bonds continued to climb, reaching 7.036 by yesterday evening.
The cost of insuring the countries’ debt against default also jumped to record highs.
The price of credit-default swaps on Portugal jumping 37 basis points to 539, and contracts on Spain climbing 28.75 to 351.5.
Ireland’s benchmark bond yields reached 9.47 per cent, before settling at 9.273 yesterday evening.
However, the main feature on bond markets yesterday, according to Barry Nangle, head of bonds at Davy stockbroker, was a rise in the yields of Belgian and Italian sovereign debt.
“The main concern yesterday was that Belgium, Italy and Spain underperformed, with spreads widening out. It was not just simply Ireland, Greece and Portugal,” he said.
Italy was forced to pay more for new debt at a scheduled auction yesterday.
Similarly, Belgium, which also raised money yesterday, saw the borrowing costs for its 10-year bonds rise to the highest level in nine months.
Holders of the senior debt of Irish banks were virtually the only winners yesterday.
The senior debt of Irish banks rose in value as bond traders welcomed the clarification that senior bondholders of the banks would be protected from sustaining haircuts until 2013.
Although banking stocks rose yesterday, global stock markets closed lower as markets failed to be convinced that the €85 billion package for Ireland would solve the euro zone debt crisis.
EU economic and monetary affairs commissioner Olli Rehn said yesterday that Spain may need further austerity measures to reduce its deficit if growth was lower than forecast next year.
The euro also continued to slide yesterday, falling to the lowest level in more than two months against the dollar and yen.
Yesterday evening the single currency was trading at just under $1.31 and a little over £0.84.
