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Dublin: 23 °C Tuesday 4 August, 2020

Irish bond prices rocket - again - on 'junk' downgrade

If Ireland borrowed for two years, it would have to pay 18.6 per cent interest – 14 times what Germany would.

Michael Noonan - an owner of German government bonds - won't be happy by the prices the markets are setting for Ireland today.
Michael Noonan - an owner of German government bonds - won't be happy by the prices the markets are setting for Ireland today.
Image: Eamonn Farrell/Photocall Ireland

INTERNATIONAL MONETARY MARKETS are this morning increasing their pressure on Ireland, further underlining the possibility of an eventual second bailout, in the wake of the decision by Moody’s to rate Irish bonds as ‘junk’.

Moody’s last night downgraded Irish government debt from Baa3 to Ba1 – a downgrade of just one notch, but one that sent Irish debt over the threshold of ‘high yield’ – the line beyond which all institutions are deemed uncreditworthy.

In announcing the downgrade, Moody’s said Ireland would probably need “further rounds of official financing before it can return to the private market” – a self-fulfilling prophecy given how the markets have reacted to the news.

The yield on the Irish 10-year government bond – considered the benchmark indicator of whether Ireland could finance itself from private markets – is rocketing this morning, shooting to an all-time high of 13.7 per cent.

The yield on an 8-year bond – the closest comparable loan to the ones Ireland is currently taking out from the EU and IMF – has also rose to a new record of 14.4 per cent, well over twice the cost of what Ireland is paying from its international backers.

Two-year loans would cost Ireland an astronomical 18.6 per cent – almost a full percentage point higher than it would have yesterday – compared to a mere 1.3 per cent being paid by Germany.

The spread between Irish and German 10-year bond is now just short of a whopping 11 per cent.

By comparison, pressure on Italy has continued to ease with the markets currently pricing 10-year loans to the Italian government at 5.44 per cent.

More: Department of Finance ‘disappointed’ by Ireland’s junk status >

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About the author:

Gavan Reilly

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