Belfast Telegraph

Irish bond prices rise 6.5% over debt fears

By Emmet Oliver

Irish bond prices climbed to 6.5% ahead of a crucial auction of €1.5bn (£1.26m) of debt by the National Treasury Management Agency (NTMA) as concerns build over the cost of Ireland's bank rescues and rising deficit.

The cost of borrowing dropped slightly as trading closed in Dublin and London after the Republic's Minister for Finance, Brian Lenihan and Taoiseach Brian Cowen sought to present a united political front by holding a joint press conference at government buildings.

Ireland and Portugal are now facing the highest borrowing costs in the eurozone, after Greece, but today the NTMA will seek to restore some confidence by auctioning up to €1.5bn of debt to investors.

Four-year and eight-year money will be auctioned with results expected in mid morning.

The auction is expected to be successful, but the pricing will be keenly watched by the bond market.

During the day the yield on 10-year Irish bonds rose from 6.29% to 6.5%, while Germany, Europe's largest economy, was paying 2.47% for money borrowed over the same time horizon.

It is understood that the NTMA is trying to widen the base of buyers for Irish bonds, but is reluctant to see too many hedge fund buyers.

The NTMA has concerns that hedge funds tend not to be long term holders of bonds and quick sales of the securities could cause further price instability.

The European Central Bank (ECB) is reported to be buying Irish bonds on the secondary market, but the bank refuses to comment on these reports.

Some traders believe the presence of the ECB should keep downward pressure on prices.

The Irish government will be determined that yields do not go beyond 7%.

International opinion continues to focus on Ireland and its economy. The latest note came from Italian bank, Unicredit.

"The government must make good on a number of fronts in the next few months if it is to convince markets that it can set both public finances and the banking sector on a more sustainable track,'' said Unicredit analyst Gillian Edgeworth.

She said the main negative that could impact on Irish bond prices would be further deep discounts on loans by NAMA.

The EU's Economic and Monetary Affairs Commissioner, Olli Rehn, said yesterday he was confident that Ireland would deal with the current problems.

"I have full confidence in Ireland and its capacity to act with determination to complete the financial repair and the necessary restructuring of the banking and financial sector."