Wednesday 26 April 2017

Irish bonds outperform state debt issued in rest of eurozone

Donal O'Donovan

Donal O'Donovan

INVESTORS made a better return on Irish government bonds than on any euro area peer of US government 'Treasury bonds' in January.

That's according to research from news agency Bloomberg and the European Federation of Financial Analysts Societies, and from Bank of America Merrill Lynch.

So far this year, bonds of the weaker 'peripheral' euro countries, including Ireland, are outperforming bonds of so-called core euro countries like France and Germany.

However, analysts last night warned that the trend was being fuelled by money pumped into European banks by the ECB since the start of the year.

Irish bonds have gained 7.7pc over January, the best result for any European bonds, according to the Bloomberg research.

Returned

On average, Irish bonds have returned 17pc to investors since the bailout was announced in November 2010.

That's compared to 11pc for German bonds and 8pc for Finnish debt over the same period, according to data compiled by Bank of America Merrill Lynch.

In contrast, investors in Portugal's government debt have lost 37pc.

So far this year Italy and Belgian are the next-best performers for investors, after Ireland.

It's a big turnaround compared to last year. For much of 2011 the trend was for investors to shun bonds from the likes of Ireland and Italy in favour of buying low-risk German, Finnish or Dutch government debt.

Since the end of December, however, European banks have borrowed €489m in cheap three-year loans from the ECB, at rates of around 1pc.

In many cases they have used the loans to buy bonds that pay interest rates of between 5pc and 8pc. Banks can pocket the difference between the low-cost ECB loans and the return on the bonds.

Analysts at Evolution Securities told the Irish Independent that the ECB loans are a big driver of the current demand for Irish bonds.

So far the scheme is helping restore confidence in the bond market, at least over the short term. (Additional reporting Bloomberg)

Irish Independent

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