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Bond Markets

Ireland's cost of borrowing falls to lowest since April 2010

Bond markets responded positively to Greece’s proposal to buy back its debts – and Ireland is benefiting.

THE COST OF BORROWING on the open markets for the Irish government has fallen to its lowest since April 2010 – seven months before Ireland entered the EU-IMF bailout.

Trading of Irish bonds on the second-hand market saw interest rates fall in the wake of yesterday’s announcement that Greece was proposing to buy back some of the bonds it had previously issued.

Although Greece’s proposal meant investors would be taking losses of up to 70 per cent on their loans, the move saw the value of Greek bonds increase in second-hand markets – meaning it would cost less for that country to borrow more.

The effects were mirrored for other weaker economies, with Irish bonds also benefiting – as the cost of a 9-year bond, currently the benchmark for Ireland, falling to its lowest in over two years.

The cost of borrowing stood at 4.399 per cent for a 9-year loan yesterday evening, and has risen only marginally today – down from a peak price of 15.56 per cent in mid-July of 2011.

The last time Ireland issued a government bond before entering the bailout programme, in late September 2010, it would have paid roughly 6.3 per cent in interest. The cost of a 9-year bond fell below this amount in mid-July 2012.

Ordinarily a 10-year bond is considered the most reliable measure for a country’s cost of borrowing, but Ireland does not have any of those bonds currently in issue.

Though Ireland’s cost of borrowing is at its lowest for some time, it remains well above that of countries with more stable economies: Germany, if borrowing today, would pay interest of just 1.281 per cent per year for a 9-year loan.

Read: Greece asks creditors to sell their bonds back to the government

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