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Contagion spreads as bond markets reject bailout plan

Ireland’s cost of borrowing remains at new highs – and so does that of Spain, Portugal and (worryingly) Italy.

Image: Nieve44/La Luz via Flickr

THE WORLD’S BOND MARKETS have continued their apparent rejection of the terms of Ireland’s bailout, as the cost of borrowing for many of Europe’s troubled economies continues to rise.

Ireland’s ten-year government bonds remain more expensive than they have ever been before, with the markets now demanding an annual interest rate of over 9.3% for Irish borrowing – while even 4-year bonds now trade well above 8%, at 8.169%.

Though Ireland will now not need to borrow on the world’s markets for a number of years – with the EU-IMF bailout fund setting aside €50bn for the government to access when it runs budget deficits in the coming years – the increasing price marks general investor rejection of the plan, which is geared at helping Ireland to resume borrowing from the markets at large.

Worryingly for other governments, however, the same fears about whether Ireland can manage its debts now seem to be spreading to other European economies too.

The price of ten-year Spanish bonds has risen to an all-time high of just under 5.5% just before noon, while the cost of borrowing for Portugal has reached 7.051% – both of which mark all-time records.

The bond yields are more pressing concerns for the Iberian countries, which unlike Ireland are not funded far in advance – meaning that either could be forced to seek alternative funding if the yields demanded continue to rise.

Even more worryingly, however, the price of Italian borrowing has reached its highest price in 18 months, standing at 4.687%. If Italy runs into funding problems, the cost of bailing it out could extend into the trillions.

The Euro has also continued its slide, standing at $1.3023 against the US dollar – its lowest price since September 20, according to data from CNBC.

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Gavan Reilly

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