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Dublin: 13 °C Monday 6 April, 2020
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ECB steps in to buy Irish bonds - and the price keeps rising

We’re well clear of 7.9% now, despite news that the European Central Bank has cranked up its purchasing.

Image: Paul!!! via Flickr

THE PRICE OF BORROWING for the Irish government is creeping slowly towards 8% this afternoon, though the price of insuring against an Irish default has fallen, on the news that the European Central Bank has had to revive its programme of supporting struggling Eurozone members.

The Wall Street Journal’s Marketbeat blog yesterday reported that that the ECB had been forced to revisit its policy of earlier this summer where it had effectively ruled itself out of buying any more bonds from its weaker member nations, with Portugal, Greece and Ireland chief among them.

Last week alone the ECB bought €711m of bonds, the first time in a month that it had splashed out in such a way. While the ECB refused to reveal the countries in which it had invested, the WSJ says the aforementioned three countries are the most likely candidates.

The paper also argued that the reactivation of the ‘emergency’ programme was far from a good sign; the ECB, it said, had previously drawn a line under its involvement, apparently expressing confidence that the markets would sort themselves out sooner rather than later.

The fact that it has had to dip into its reserves once more to help stimulate demand for the bonds, therefore, is a sign that things have not gone  as well as ‘Team Trichet’ would have liked.

As a result of the ECB’s intervention, the cost of insuring against an Irish default – through the purchase of a ‘credit default swap’ – fell by 0.44% to 5.6%, a significant drop based on its gains of the past weeks, amid what Markit News called ‘rumours of [further] ECB bond buying].

That means that investors feel the risk of a potential default by the Irish government has fallen somewhat, with a 3% drop in the probability of a default in the next five years.

With the price of bonds continuing to rise this afternoon, however – with ten-year bonds moving at 7.922% as of 3:30pm – it would appear that the ECB’s intervention has done little to inspire wider confidence.

Why you should care about the bond market chaos >

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About the author:

Gavan Reilly

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