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Investors raise hopes for Ireland's return to markets


BOND investors still see Ireland as a special case among the bailout countries, according to the latest market prices.

The news will boost hopes of a limited return to borrowing in the money markets at some stage this year.

The latest prices in the markets show that it would cost the country an interest rate of around 5.3pc to borrow over two years in the markets and 7.49pc to borrow over nine years.

The prices are high by any standards, and around double the cost of borrowing from the EU and IMF bailout funds, but are similar to the levels paid by Italy, which is not in a bailout programme. Italy paid close to 5pc to borrow over two years at an auction in December.

On Friday, Ireland was one of just six euro countries to escape a ratings downgrade -- along with Germany, Finland and Estonia, which, like Ireland, are all export-oriented economies.

Despite the ongoing, even deteriorating, debt crisis, traders said yesterday that they had seen good international demand for Irish government bonds, including a growing appetite for longer-dated paper.

Ryan McGrath, a trader at Dolmen Securities, said he had seen some investors switch from Irish government bonds due to be repaid in 2014 to bonds that were due to be paid back in 2020.

That suggests increased confidence in Ireland's long-term financial stability.

Implied borrowing costs for Ireland were up marginally yesterday but after falling on Friday. In contrast, Portugal and Greece remain pariahs in the markets.

In Greece, talks between the government and lenders about implementing losses of 50pc on private-sector lenders have broken down -- threatening a whole new round of instability.

Greece's private-sector creditors warned the government to break the deadlock if it was to avoid a disorderly default.

Portugal's 10-year borrowing costs shot up by 1.78pc yesterday to more than 13pc.

Irish bond price, in contrast, held firm despite weekend commentary on the potential need for a second bailout.

Mr McGrath said Ireland could return to the markets this year but warned that the best solution to exiting from the bailout deal in 2013 and 2014 would be a twin-track approach, combining some market financing with parallel funding from the troika.

"To instantly swap bailout funding for full market access is an unreasonable expectation," he said.

Irish Independent