Business World

Thursday 23 February 2017

Irish bond costs rise as Credit Suisse is positive

Emmet Oliver

IRISH bonds continued to edge over 6pc yesterday as concerns lingered over the cost of the banking rescues and Ireland's large deficit. However the government was boosted by positive coverage from a key European bank, Credit Suisse.

Ten-year money was trading at 6.13pc as markets shut in Dublin, with the 'spread' over Germany at 3.7pc.

Ireland and Portugal bonds came under pressure as concerns grew over how sustainable budget deficits are in both countries. For now Spain appears to have escaped the market pressures. Greece is still facing the highest borrowing costs in the eurozone.

Forecasts

Barclays Bank said on Thursday if bank rescue costs rose above current forecasts and the economy generally deteriorated, outside assistance might be needed. However, the IMF said yesterday it didn't think that Ireland would need any help and the Barclays report was met with a hostile reaction domestically.

Investors and economists sparred yesterday over what might happen in Ireland. Credit Suisse, the Swiss bank, said the issues in Ireland remained "large and complex'', but Ireland had sufficient finance to get through the current crux.

"Ireland is also in an extremely strong financing position. This year's funding needs have almost all been met. We estimate next year's financing needs to be a manageable €30bn''.

The bank also remarked on the €20bn of a cash buffer held by Ireland. "Perhaps more importantly recovery is under way." Recent declines in the value of the euro have benefitted Ireland by boosting its exports and improving competitiveness.

"That is having an effect -- industrial production is already back above its pre-recession levels''. A key test of how the market views Ireland comes next week when the NTMA plans to sell short term bills.

However, sentiment remains very bearish in some quarters. Citi Bank economist William Buiter said he doubted whether the Irish Government could pay both bank bondholders and sovereign bondholders.

US economist Nouriel Roubini meanwhile said the position of Anglo Irish bondholders had to be looked at.

But NCB said there was a lot of "noise'' in the market and any talk of IMF assistance was "far too premature''.

"The underlying fiscal situation, when one steps back from the noise, is not pretty, but talk of the IMF is too premature. Ireland is already fully funded until the second half of 2011-- there are no liquidity concerns'', said its analyst Brian Devine.

"The Irish deficits forecasts are much larger than the German and other peripherals. However, the gross funding requirement is not only deficits but also redemptions.

"Seeing as Ireland issued relatively little debt over the preceding decade and entered the crisis with a debt to GDP ratio of just 25pc means that the gross funding requirement as a percentage of GDP is more favourable relative to others than just the deficits,'' the NCB analyst added.

Irish Independent

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