BoI a better bet than ROI?
Published 31/10/2010 | 05:00
THE market gave a resounding vote of no confidence to the Government's revised target of €15bn of spending cuts and tax increases over the next four years, when the yield on Irish Government bonds climbed to over 7 per cent this week.
If the Fianna Fail/Green Party administration thought that the announcement it was taking €15bn -- twice what had previously been forecast -- out of the economy over the next four years would persuade the bond markets to lend us money again in the new year, then the early indications from the markets were not very encouraging.
With the yield on the benchmark 10-year Irish government bond having now climbed to over 7 per cent -- the highest since we joined the eurozone almost 12 years ago -- it is clear that the bulk of global investors no longer believe that Ireland can cut its budget deficit to 3 per cent of GDP by 2014, without a significant restructuring of our rapidly growing national debt. Meanwhile, at the same time as the Irish Government was getting the cold shoulder on the bond markets, Bank of Ireland succeeded in raising €750m in two-and-a-half year bonds to investors.
The bonds, which are covered by the Government guarantee, were sold at a yield 1.3 per cent higher than comparable Irish Government bonds.
Those sort of yields indicate that, at the rate things are going, Bank of Ireland will soon be a better credit risk than the Irish Government.