Bond yields fall to 5.39pc as markets back Ireland
THE cost of Irish borrowing fell dramatically yesterday after Germany's constitutional court ruled that the European Stability Mechanism (ESM) was compatible with German law.
Yields on the benchmark nine-year note yield fell 21 basis points to 5.39pc in afternoon trading as investors welcomed the ruling. The yield on five-year bonds fell 40 basis points to 4.1pc, which pushed yields on both bonds to their lowest levels since August 2010. Yields on two-year bonds fell below 2pc.
Yields for Spanish and Portuguese bonds also fell, while European shares rose to fresh highs as investors cheered the ruling, which will allow political leaders to take new steps to tackle the eurozone's debt crisis.
"The backdrop created by the German (constitutional court) ruling this morning is extremely positive," National Treasury Management Agency boss John Corrigan said yesterday.
He said Irish borrowing costs may drop further in the months ahead because of the court ruling, the ECB's recent decision to allow unlimited bond buying and actions taken by the NTMA itself.
Neither Mr Corrigan nor Finance Minister Michael Noonan expects the ECB to buy Irish bonds but the central bank's ability to do so helps sentiment.
The NTMA will be selling treasury bills in an auction this morning. It is only the second time since the bailout that the debt agency has sold the bond-like investments, but Mr Corrigan said the auctions may now be held at monthly intervals.
Regular, monthly auctions would mark a return to the days before the crisis when the State regularly raised money on the bond markets.
Mr Corrigan forecast that the yield for three-month paper would fall well below the 1.8pc paid to sell treasury bills of the same maturity in July, commenting: "We're confident it will be much reduced compared with the last bond auction."
The NTMA boss said the agency could afford to be choosy about when it returns to long-term bond markets and that it was in a much more comfortable position after reducing to €2.4bn a €12bn funding cliff that is looming just after the bailout ends next year.
That fiscal cliff had been a "big, big concern" with investors, he said. The NTMA hacked away at it by launching two bond switches -- its first issue of sovereign bonds that stagger capital repayments -- and raising €4.2bn in new, long-term debt.
Mr Corrigan, who met investors in Frankfurt on Tuesday while colleagues met others in Paris and the Netherlands, said risks to a return to monthly bond auctions included any veering off Ireland's bailout targets as well as a fresh escalation of the eurozone debt crisis.
He added that ratings agencies had told the NTMA they were happy with Ireland's bailout progress but that issues across the eurozone were constraining them from upgrading Ireland's credit rating.
Euro crisis: Pages 2 & 3