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Borrowing costs plunge as 10-year bond yields dip under 4pc

IRELAND'S long-term borrowing costs have dropped to rates not seen since 2007.

It is good news for the Government, which needs to be able to borrow at affordable rates on the markets in order to exit the bailout at the end of this year.

The yield, or return, that investors get for holding 10-year Irish government bonds dropped below 4pc yesterday, the lowest level in absolute terms since March 2007.

The Irish 10-year yield fell to 3.98pc as Ireland along with countries across Europe benefits from a surge in investor appetite for relatively risky debt.

The yield is down from the yield of 4.15pc just a month ago, when the 10-year bond was first placed with investors.

France, Belgium and Austria all saw their debt costs drop to an all-time low yesterday. They are benefiting from the same trend that is buoying Ireland.

Bond yields are falling as central banks, in particular Japan's, pump more and more cash into the global economy. It forces investors to chase assets including bonds, explains Donal O'Mahoney of Davy Stockbrokers.

The lower cost of borrowing on the markets combined with attractive interest rates on bailout loans means that Ireland is benefiting from an exceptionally low overall cost of debt servicing – even though our debt levels are high, he said.

The Government is due to repay a €4.6bn bond on April 18 at a time when investors are seeking assets – that is helping increase demand for the remaining stock of debt, according to Ryan McGrath, a bond trader at Cantor Fitzgerald.

The difference between the average yield of Austrian, Belgian, Dutch and French 10-year bonds and their German equivalents shrank to the smallest in two months.

The difference between what Ireland pays to borrow and what German and other top AAA-rated states pay is still high, however. That difference, or spread, rather than absolute costs, is watched by investors in the markets as the main indicator of risk perception.

France's 10-year yield dropped to 1.709pc, the lowest level since 1990. Belgium's 10-year yields hit an all-time low of 1.924pc. Austrian yields have dropped to 1.46pc.

Japan's central bank said it would increase its monthly bond purchases to €56bn.

Germany's cost of borrowing rose for the first time in four days after it said industrial output rose 0.5pc in February.

Irish Independent