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Black Thursday

Bond markets respond favourably to Anglo finality

The price of government borrowing – and the Irish-German spread – falls back, but AIB shares crater.

INTERNATIONAL BOND MARKETS have responded reasonably positively to the government’s announcement of a conclusive total on the price of bailing out Anglo Irish Bank.

On international secondhand markets, the price of Irish 10-year bonds – effectively the interest rate required by the government to borrow – slipped to just under 6.6%, and was trading at 6.601% at 11:15am this morning according to data from Bloomberg.

The price of two-year, four-year, six-year and eight-year bonds also slipped by relatively greater amounts than the ten-year equivalent did.

At 11:15am the spread between Irish and German ten-year bonds had narrowed to 437bps (or 4.37%), down from 448bps at 7:30am when trading opened on Irish bonds.

Despite the relative drop in the price, however, the cost of Irish debt remains significantly higher than at any point in the recent past, remaining almost a full percentage point higher than just a month ago, and 1.6% higher than two months ago.

On the stock markets, meanwhile, the ISEQ is performing relatively well, dropping just under 0.5% overall, largely accountable by the drop in AIB shares which have dropped by over 30% as of 11:15am, according to data from Davy, dropping its total market capitalisation to a mere €417m.

By comparison, the government this morning confirmed that AIB would be recapitalised to the tune of at least €2bn, and possibly €3bn. AIB shares carry 1.32% of the weighting of the ISEQ index.

In pre-trading on the New York Stock Exchange, where AIB shares are also traded, shares were down from $1.64 to $1.12 as of 11:15am – a likewise drop of 31.71%, undoing their good work of yesterday when they gained 17%.

On currency markets the euro has gained ground against the dollar, though this is due to the latter continuing to slide against all of the world’s major currencies. The euro is down, meanwhile, against the pound and the yen.