Business Irish

Sunday 18 February 2018

State's 10-year borrowing costs fall below 1pc

ECB President Mario Draghi. Reuters
ECB President Mario Draghi. Reuters
Donal O'Donovan

Donal O'Donovan

Borrowing costs for the State dropped to an all-time low yesterday - with the interest on 10-year bonds below 1pc for the first time.

It's a boon to the Government, because it means outstanding debts can be refinanced at a lower price on the markets but it is a signal investors are convinced the European economic is stagnating.

"If you believe the bond markets, growth rates are going to stay down for a long time," Davy's economist Conall MacCoille said.

That's because bond investors first concern is usually to make returns that at least beat the rate of economic growth.

Returns for bond investors have fallen since the European Central Bank (ECB) announced plans for so called quantitaitive easing (QE) - ultra loose monetary policy based on printing money to buy assets.

The plan is to drive investors into riskier assets such as shares by supressing the return on safer assets including bonds.

In theory that could help lift the euro area out of its current malaise.

The yield - effectively the interest rate - on Irish 10-year bonds fell to 0.979pc yesterday, the first time such long term borrowing costs have been less than 1pc a year.

Yields were 14pc at the worst period of the debt crisis.

It is already Government policy to replace expensive IMF bailout loans that command an interest rate of around 5pc with cheaper private sector debt. The latest moves make that logic even more compelling.

Indo Business

Promoted Links

Business Newsletter

Read the leading stories from the world of Business.

Promoted Links

Also in Business