Monday 22 January 2018

Irish-German bond spread widest in two weeks on bank concern

Daniel Tilles and Keith Campbell

Irish bonds slid, driving 10-year yields higher for the second consecutive day, as the government won permission to raise the amount of capital it can inject into Anglo Irish Bank to more than what was requested in June.

The declines sent the yield premium, or spread, investors demand to hold the securities instead of similar-maturity benchmark German debt to the highest in more than two weeks.

The European Commission today granted permission for an additional injection of as much as €10.05bn to as much as €24.5bn, the Finance Ministry said today. The commission had already approved €14.4bn.

“There have been some bad headlines about Ireland’s banking sector and its fiscal outlook,” said Padhraic Garvey, a fixed-income strategist at ING Groep NV in Amsterdam. “Irish bonds have held up remarkably well until now.”

The yield on the 10-year Irish bond jumped 15 basis points to 5.25pc as of 12.55pm in London. The two-year note yield rose six basis points to 2.80pc.

The Irish-German 10-year yield spread widened 14 basis points, or 0.14pc point, to 264 basis points, the most since July 23.

Standard & Poor’s said yesterday that it’s keeping its ratings on Anglo Irish on creditwatch with negative implications. S&P has a BBB ranking for the bank’s debt, the second-lowest investment grade.

“The market seems to be catching up on negative news, perhaps using the upcoming bond sale as an excuse to sell,” said Garvey.

The Irish debt agency is scheduled to sell 2014 and 2020 bonds on Aug. 17.

The Portuguese-German 10-year spread widened five basis points to 253 basis points, the most since July 26. The Spanish yield difference with German bunds increased two basis points to 153 basis points.


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