Wednesday 22 November 2017

Traders jittery as bond yields soar

At the end of the day AIB had fallen 5.7pc to 76c. Photo: Bloomberg News
At the end of the day AIB had fallen 5.7pc to 76c. Photo: Bloomberg News
Peter Flanagan

Peter Flanagan

IRISH shares fell yesterday as fears surrounding the state of the Irish economy and the wider ramifications for Europe weighed on the markets.

The ISEQ Overall Index dropped 0.87pc or 24.47 points to 2,782.64 as traders fled from financial stocks after Irish bond yields hit a new high and Finance Minister Brian Lenihan announced a partial extension of the bank guarantee scheme.

The banks all fell more than 5pc after the yield on 10-year Irish bonds soared to more than 600bps -- the highest in 10 years.

The spread between Irish and German bonds now stands at a record 380bps.

That news, combined with a report that the stress tests carried out on European banks earlier this year were even weaker than had previously been feared, and concerns that the Basel III negotiations on global banking standards would lead to banks having to hold more capital than expected, sent traders rushing for the exits.

Yesterday afternoon the Government said it would extend part of the bank guarantee scheme in an effort to shore up the financial sector.

Earlier, Davy stockbrokers cut its rating on AIB from 'outperform' to 'neutral'.

At the end of the day AIB had fallen 5.7pc to 76c, while Bank of Ireland and Irish Life & Permanent had plunged 5.9pc to 72c and €1.69 respectively.

Construction giant CRH was another major laggard yesterday, slipping 1.45pc to €13.45. US president Barack Obama announced a massive programme to overhaul the country's infrastructure on Monday but that is now unlikely to start before the end of the year.

On a day when few stocks rose, Tullow Oil gained 2.35pc amid reports that the oil and gas explorer was a possible takeover target, while Donegal Creameries jumped more than 5pc to €3.05 on expectations that the business will report strong results this week.

It was the same story elsewhere in Western Europe as concerns about sovereign debt held markets back. National benchmark indexes fell in 16 of 18 markets in the region.

France's CAC 40 fell 1.1pc and the UK's FTSE 100 lost 0.6pc, as did Germany's DAX Index. The composite Stoxx Europe 600 Index lost 0.5pc.

"Investors will keep worrying about a possible double dip in the next few weeks," said Michael Koehler, head of strategy at Landesbank Baden-Wuerttemberg in Mainz, Germany.

"Until we see if we keep getting better fundamental data, setbacks are not unlikely. Banks still face problems with regard to their capital ratio, which will weigh on sentiment for financials in the next couple of days."

As in Ireland, financial stocks drove the market down. Santander, the world's biggest lender, fell 1.7pc while Barclays dipped 2.7pc.

Irish Independent

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