Bond yields drop in positive reaction to harsh measures
Published 08/12/2010 | 05:00
THE markets responded positively to the Budget yesterday.
Ireland was the only Eurozone country to witness a drop in the cost of government borrowing.
The yield, or interest rate, on Irish government debt fell from late morning through the afternoon as fears of the Budget being blocked by independent TDs evaporated and the markets cheered Ireland's austerity measures.
The ISEQ index of Irish shares closed at a three-month high, as Allied Irish, Bank of Ireland and Irish Life & Permanent all posted percentage gains in double digits.
The yield on Irish 10-year bonds fell by 0.16pc to 8.22pc. International investors believe the passing of the Budget is the first step in stabilising the Irish debt problem.
The first sale of €5bn of bonds to finance our €85bn bailout is scheduled for the second half of January, Klaus Regling, who manages part of the fund, said yesterday.
Bond yields in other countries rose across Europe after finance ministers meeting in Brussels had failed to agree any new measures to tackle the debt crisis. Germany emphatically rejected either increasing the €750bn European bailout war chest or moving towards a common form of EU debt.
Last night Fine Gael's Michael Noonan criticised Brian Lenihan for not joining with other small countries to lobby for these so-called E-Bonds.
The policy was pushed by a number of leaders including Luxembourg's Prime Minister Jean Claude Junker.
However,sovereign debt expert Padhraic Garvey told the Irish Independent that Mr Lenihan did not support the E-Bond idea when it was previously suggested by the Dutch bank ING.
ING is one of few banks that sells bonds for the Irish government.
With no new measures to tackle the debt crisis, it fell to the ECB to buy bonds again yesterday.
The bank was reported to be buying Irish and Portuguese government bonds to support prices.
Few analysts expect a major change in the cost of borrowing on the open market for Ireland for the rest of the year.