Wednesday 13 December 2017

Cost of debt fluctuates on nervous bond markets

Brendan Keenan

THE cost of Irish government debt fluctuated on nervous bond markets yesterday, but with no signs of new pressure after the auction of €1.5bn of bonds on Tuesday.

Portugal sold €750m of four-year bonds at a yield of 4.695pc. As with the Irish auction, this was a full percentage point higher than the previous such sale in July.

But as in Dublin, there were good offers to lend to the Madrid government at these interest rates.

Investors bid for 3.5 times the amount offered -- more than the 3.1 times offered in July.

Portugal also sold €300m of 10-year bonds at a yield of 6.242pc but did not borrow the full €1bn limit that it had set.

"The auction seems to have been taken down without too much difficulty after the wider spreads provided an opportunity," said Nick Stamenkovic, a strategist in Edinburgh at RIA Capital Markets.

"It's slightly disappointing they didn't manage to sell the maximum intended amount," he said.

Portugal has already funded around 90pc of its financing needs for this year and does not have to replace any maturing bonds until next year.

Ireland's National Treasury Management Agency (NTMA) has stressed to the markets that it is fully funded until the middle of next year.

Today the NTMA will sell between €300m and €500m short-term Treasury Bills due for repayment in a few months.

The yield on Irish six-year bonds fell in market trading yesterday, but buyers demanded higher yields for 10- and two-year bonds.

The difference between yields on volatile two-year bonds between Ireland and Germany widened by more than quarter percentage point to 3.6pc.

In an editorial yesterday, the 'Financial Times' said the Government should "cut the umbilical cord to the banking system" instead of the present "perverse" policy that was pushing up bond yields.

"It might mean an Irish banking system with fewer liabilities and more foreign ownership," the newspaper said. "But it would set the deficit on a sustainable path."

NCB Stockbrokers said current yields reflect the reality of the situation and this should begin to become apparent in coming weeks.

"The spread over Germany is not consistent with the underlying fundamentals and debt profile, especially seeing as Ireland is fully funded until the second half of 2011 and therefore not facing a liquidity crisis," chief economist Brian Devine said.

The 4pc spread over German yields is "substantially" above NCB's fair-value measure, the report said. (Additional reporting Bloomberg)

Irish Independent

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