Thursday 27 July 2017

Bailout can't stop rising support for our debt

Donal O'Donovan

Donal O'Donovan

PORTUGAL'S bailout news couldn't halt the rising support for Ireland in the markets yesterday.

Irish government debt enjoyed a fifth straight day of gains yesterday. However, a former director of the IMF Donal Donovan said Ireland may need another loan beyond 2013.

It's the best performance for Ireland in almost a year, according to bond trader Ryan McGrath of Dolmen Securities.

Mr McGrath said Ireland was now in a different space to Portugal as it is seen to be addressing both its banking and fiscal issues. Yields are still too high to get back to the market, but moving in a positive direction.

The head of government debt at ING Bank in the Netherlands, Padhraic Garvey, said Ireland's debt was recovering because it was seen to be the best placed of the three rescued countries to recover from the crisis.

The yield, or cost of borrowing, has dropped 1pc over the past week. The yield on Irish 10-year bonds fell below 9pc yesterday for the first time since February.

Mr Garvey said the stress test results and the decision to protect senior bondholders was boosting Ireland even as Portugal fell out of the market.

However, he said the markets would want to see three or four quarter-year periods of recovery before lending to Ireland again.

He said Ireland needed to get back into the markets before the end of next year in order to avoid being caught in a debt trap after 2013, when a new EU bailout mechanism would make borrowing in the private sector impossible for a bailout country.

Spain has also seen a marked recovery in the market. Borrowing costs for Spain fell yesterday, continuing the trend since the last quarter of 2010.

Spain was considered a potential bailout candidate when Ireland was forced into a rescue last November, but has rebuilt its reputation as a borrower with remarkable speed.

"It looks like Spain has done enough to come off that bailout radar," said Mr Garvey.

Spain's 10-year government bond yields 5.3pc, making the cost of funding high, but less than the 5.8pc Ireland is paying under the bailout or the 9pc the market would like to charge to lend to us.

Spanish debt-to-GDP will be 70pc this year, according to Evolution Securities.

Irish Independent

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