Bondholders could bear brunt of interest row
Published 15/03/2011 | 05:00
Irish banks' bondholders could bear the brunt of European leaders' refusal to cut the interest charged on Ireland's bailout loans, traders said last night.
Senior Anglo Irish Bank bonds and senior AIB bonds not covered by government guarantees fell by as much as 2pc of face value yesterday, driving up yields.
Yesterday was the first day of trading since euro leaders agreed a range of measures to try to stem the debt crisis, and most eurozone government and bank bonds rose on the news.
Senior Irish bank bonds fell on investor fears that the Irish Government is now more likely to seek ways of imposing losses on the senior lenders to rescued banks.
It comes after eurozone leaders refused to ease Ireland's borrowing terms at a meeting on Friday.
It had looked like plans for the so-called burden sharing were quietly shelved by the new Government ahead of Friday's meeting but the lack of progress could now see the policy revived.
"Haircuts on senior debt may now be used as a credible bargaining tool for the Irish government as the gloves come off in the negotiations," said bond trader Ryan McGrath of Dolmen Securities.
The cost of insuring AIB bonds against default jumped 2pc to 23.6pc in advance, plus 5pc per year.
It means investors are paying €5.86m to insure €10m of bonds over five years. The insurance pays out if haircuts are imposed.
Bank of Ireland has needed less government help than the other main banks. Its senior bonds held steady yesterday but the cost of insuring the bonds rose 1.7pc to 17.5pc.
In fact the market for government bonds was generally better after leaders agreed measures including increasing the size of the euro bailout funds.
Greek, Spanish and Portuguese bond yields all fell yesterday.
The yields on 10-year Greek debt fell by more than half a percent to just over 12pc at one stage, before ending at 12.3pc.
Greece agreed to sell €50bn of state assets in return for a 1pc cut in the cost of its bailout loans.