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Irish 10-year debt yield falls back below 9pc

IRISH government debt continued to outperform the market yesterday, with the yield or borrowing cost on 10-year government bonds ending the day at less than 9pc.

Support for Ireland grew after bond investor BlueBay Asset Management, a unit of the Royal Bank of Canada, said it was buying Irish government bonds.

Pessimism about the country's finances has reached "unrealistic" proportions, it said.

Yesterday Mark Dowding, a senior portfolio manager at Bluebay, said he had been buying Irish bonds since last week.

"Ireland's economy has more competitive advantage compared with Portugal's," said Mr Dowding.

"We like the fact that the interests of European Central Bank and European Union policy makers are very much being observed by the new government. A near-term restructuring of Irish government debt is extremely unlikely."

BlueBay manages $39bn (€27bn) of assets.

Mr Dowding says his renewed faith in the Irish debt came after the Government stepped back from its plan to impose losses on senior bondholders in rescued Irish banks. "We were concerned in the election process that the new government may look to turn its back on Europe and try to go it alone with an independent policy.

"It's a relief that it's not the case. In this environment, Ireland will continue to receive external assistance and support," he said.


Yesterday Elizabeth Afseth, a bond-market analyst at Evolution Securities in London, said Ireland's debt was rallying because investors thought the economy here had better recovery prospects than Greece or Portugal.

Investors believe a restructuring of Greek government debt is inevitable.

A Greek default would mean delayed repayments on government debt or even losses for bondholders.

Investors think Ireland has a better chance of recovering from the crisis without a default, she said.

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However, Ms Afseth said the buying of Irish bonds was still very limited and warned that the better sentiment to Ireland was fragile.

There is a fear in the market that if Greece or Portugal does default on their debt in 2012 or 2013, the trend could spread to Ireland.

That's because a defaulting country would end up with a lighter debt burden, which some investors fear would undermine the political will in Ireland to take the pain needed to remain solvent, she said.

Meanwhile, the head of PIMCO, the world's biggest bond investor, Mohamed A El-Erian, said he believed the threat of a government default by one of the three bailout countries had been brought forward by Portugal's bailout, because Spain and Italy were no longer seen to be at risk.

"With reduced concern about the contagion spreading the IMF/ECB and EU will be less willing to continue to pile new debt on top of old debt, and rightly so," he said.

That will accelerate the move from an unsustainable liquidity approach to a more durable solvency solution -- code for default, he warned.

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