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Dublin: 12 °C Sunday 5 July, 2020

7.4% - investors fall away as government default fears continue

Up, and up, and up…

THE WORLD’S INVESTORS are now more doubtful than ever before that the Irish government will be able to repay its debts, charging a higher interest rate to the government for its borrowings than ever before.

The yield (or interest rate) on 10-year government bonds, the most common form of government borrowing, exceeded 7.4% for the first shortly after 9am this morning – the highest rate the government has had to pay to borrow cash since Ireland joined the Euro in 1999.

The rate had closed at a still-record-high 7.296% yesterday, just short of their previous all-time record that has been shattered in this morning’s trading.

Thought the government will not be borrowing from the world’s investors until at least the New Year, the new spike in the price – likely led by the news of Jim McDaid’s resignation, which raises the chances of the Budget failing to be passed by the Dáil – will be a major worry to the state.

Similarly, the price of a ‘credit default swap’ – a type of insurance which investors can take out against the risk of the government defaulting on bonds – has also reached record highs, reaching 540bps (the equivalent of 5.4%) earlier.

This high price means that investors holding €10m of Irish debt will have to pay €540,000 in order to insure themselves against the possibility that the government will not repay their bonds.

It also means that insurers believe there to be a statistical 30% chance that the Irish government will default – that is, fail in its repayments – within the next five years.

The increase in the price of Irish borrowing had also brought the spread between Irish and German ten-year bonds to a massive 4.96%, an all-time record.

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About the author:

Gavan Reilly

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