Friday 23 February 2018

Better debt outlook buoys government bonds

Lukanyo Mnyanda and Emma Charlton

IRISH government bonds rose yesterday to outperform all their eurozone counterparts after Moody's raised the outlook on Irish debt.

The extra yield that investors demand for holding Irish 10-year bonds instead of German bunds dropped to the least since May 2010.

Germany's government bonds fell as Angela Merkel searched for a third-term coalition partner after winning Sunday's elections.

"The Moody's change is only a change in outlook; they still have Ireland at sub-investment grade, but it is a positive development," said Owen Callan, an analyst at Danske Bank in Dublin.

"The change came late on Friday night so yesterday was the first opportunity for traders to respond," he added.

"It reflects the adjustment that the nation has made and that's why we're seeing a bit of a better performance in Irish bonds."

Ireland's 10-year bond yield decreased three basis points, or a 0.03 percentage point, to 3.86pc in London after falling to 3.84pc, the lowest since July 25.

Yields eased later in the day.

Ireland's Ba1 grade at Moody's, one step below investment grade, compares with BBB+ rankings by Standard and Poor's and Fitch Ratings.

The yield spread between Irish 10-year bonds and similar maturity bunds narrowed eight basis points to 187 points at one stage yesterday, the least since May 2010.

Irish bonds have returned 7.7pc to investors so far this year, according to Bloomberg World Bond Indexes.

Italy's gained 4.4pc and Spain's earned 9.1pc, while German securities lost 2.4pc.

Irish Independent

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