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Cost of borrowing for Ireland falls after German court ruling

The green light for the ESM from the German constitutional court has driven down the yield on Irish government bonds.

A trader smiles as news of the German constitutional court's ruling on a challenge to the ESM filters through in Frankfurt.
A trader smiles as news of the German constitutional court's ruling on a challenge to the ESM filters through in Frankfurt.
Image: Michael Probst/AP

THE COST OF BORROWING for the Irish government on the bond markets has fallen today, as investors respond positively to the German constitutional court’s rejection of a complaint which would have killed off a permanent Eurozone bailout fund.

The yield on Irish bonds on the markets – i.e. the interest rate that investors expect to receive in exchange for lending money – has fallen on second-hand bond markets today, just a day before Ireland goes back to the markets to borrow on a short-term basis.

The cost of taking out a 9-year loan stood at 5.44 per cent at 2:45pm this afternoon – the first time since August 2010 that Ireland would have been able to borrow money quite at a rate below 5.5 per cent.

Similarly, the cost of borrowing on a two-year basis – which stood at 2.67 per cent when trading opened – stood at 2.24 per cent, again the cheapest for two years.

Other countries have also seen modest benefits: the cost of a 10-year loan for Italy has fallen to 5.05 per cent, and for Spain to 5.96 per cent. In the latter’s case, borrowing had cost almost 7.7 per cent less than two months ago.

The cost of borrowing for Germany, which has hit record lows in recent months, remains a modest 1.633 per cent – lower than the eurozone rate of inflation, meaning investors are happy to lend to Germany if it means they are guaranteed to at least get their money back after a decade.

Ireland tomorrow hopes to sell off €500 million of three-month treasury bills, in what will be only its third return to the bond markets since borrowing became prohibitively expensive – sending Ireland into an EU-IMF bailout – in late 2010.

Expainer: Everything you wanted to know about the bond markets but were too afraid to ask

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Gavan Reilly

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