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Dublin: 11 °C Monday 22 September, 2014

Irish bonds break all-time high – just after coalition deal is published

The price of government borrowing was higher yesterday than it was when we accepted the €67.5bn bailout in November.

THE PRICE OF BORROWING for the Irish government is approaching its all-time record high – just as Ireland’s new government prepares to take power.

The cost of 10-year Irish government bonds being traded on second-hand markets has hovered above the 9 per cent mark since early February, and in recent weeks had approached the 9.472 per cent peak of November 30, shortly after Ireland accepted its bailout deal.

Yesterday, the price of borrowing hit a new all-time record – breaching the 9.5 per cent mark for the first time since Ireland joined the euro – as the markets had their first chance to respond to Ireland’s new coalition government.

Bonds peaked at 9.52 per cent – putting the spread between the costs of borrowing for Ireland and Germany at a near-record 6.2 per cent.

Prices subsided somewhat before the end of the day, but still closed at a significantly inflated 9.416 per cent; they are up moderately on that price in early trading this morning.

The following graph, from Bloomberg, shows the movement within Irish bond prices over the last month.

Market sources told Reuters last week that the cost of insuring against an Irish default reached a new record price last Monday in the aftermath of the election results, with investors believing there was a one-in-three chance of Ireland forcing burden-sharing on its sovereign bondholders.

It is worth noting, however, that the price of borrowing for Greece and Portugal also spiked yesterday, while Italian costs also nudged slightly higher.

Whether the market response is directly related to the publication of the programme for government or not is obviously unknown, though the spike in Irish prices – a sign of unease among investors about Ireland’s prospects – underlines the daunting task facing the new government in regaining control of the state’s expenditure.

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