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Bailout Republic?

Irish-German bond spread surges past 5%

The price of government borrowing for Ireland is now over three times higher than it is for Germany.

News of the unrest and the High Court’s ruling that the government should not impede the holding of the Donegal South-West bye-election coincided with the cost of government borrowing rising to yet another all-time record.

Interest rates stood at 7.458% at 5pm today as markets closed - up by a sixth of a percentage point on today’s opening value, and almost a full 1.5% higher than their closing value on October 18, just 16 days ago.

The increase in the Irish price sent the benchmark measurement of the value of Irish bonds – the additional expense of lending for the Irish government to that of the German one – to past 5% for the first time, standing at 5.04% as of 5pm.

Bad across the board

The price of eight-year bonds had crept toward 7% as the markets closed, finishing at 6.969%, while six-year bonds finished at 6.418%. Four-year paper approached 6%, closing at 5.924%, with two-year borrowing costing 4.3%.

The price of ‘credit default swaps’ also hit new records, reaching 5.6% late this afternoon – meaning that holders of €1m in Irish debt would have to pay €56,000 to insure themselves against the risk of default.

Statistically this rate means that the markets believe there to be a 31% chance that Ireland will now default on its debt obligations in the next five years.

Why you should care about the bond market chaos >