Friday 24 November 2017

Election fears hit EU markets but Irish bonds remain firm

Italian Prime Minister and leader of Democratic Party Matteo Renzi. Reuters
Italian Prime Minister and leader of Democratic Party Matteo Renzi. Reuters

John Geddie and Colm Kelpie

THE bond markets appeared unruffled by the likelihood that half the population was set to vote for independents or Sinn Fein in the European and local elections – with Irish borrowing costs dipping yesterday.

Elsewhere in Europe, investors were not so relaxed. Lower-rated peripheral bonds inched up yesterday with niggling EU election concerns curbing enthusiasm over the latest round of ratings upgrades.

Italian and Spanish 10-year yields opened two basis points lower at 3.03pc and 3.22pc respectively. Greece was one basis point down at 6.51pc, while Irish bond yields actually dipped to about 2.77pc.

Strategists were recommending investors to favour safe haven bonds yesterday ahead of EU elections which could destabilize some of the eurozone governments.

In Greece, a strong showing by anti-bailout parties may hurt an already-fragile coalition, potentially paving the way to national elections.

In Italy, a poor result for Prime Minister Matteo Renzi's (below) party might weaken his drive for the swift reforms he promised when he took power in a party coup.

Prices in peripheral bonds have stabilised after a sharp sell-off, but with EU election results set to be released tomorrow ahead of long weekends in the UK and the US, trading volumes were fairly subdued yesterday.

"The short-term outlook ahead of the weekend still looks shaky... (German) Bunds look supported," said global banking and financial services company Commerzbank in a research note.

In a separate development ratings agency, Fitch lifted Greece's rating for the second time in a year yesterday, while Standard and Poor's followed through with a widely-expected upgrade on Spain.

"The periphery has rallied off their lows but I'm not sure how much more mileage there is left in it," said Marc Ostwald, a strategist at Monument Securities.

Fitch praised Greece's improving fiscal track record as it lifted its rating from B- to B, with a stable outlook. It becomes the most bullish agency on the country which defaulted just two years ago, although its rating is still five notches below investment grade.

Standard and Poor's brought its rating for Spain in line with Moody's, lifting it to BBB from BBB- based on its economic prospects. Fitch remains the most optimistic on Spain, with its rating of BBB+ one notch above the other two main agencies.

S&P also affirmed the Netherlands at AA+ with a stable outlook. Moody's was scheduled to deliver its verdict on France and Slovenia later yesterday, with the former being widely rumoured for a downgrade and the latter tipped for a upgrade.

Irish Independent

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