Belfast Telegraph

Irish bonds 'to suffer' in referendum announcement

By Donal O'Donovan

Traders say Irish government bonds will suffer, at least in the short-term, after the Republic's Government announced a referendum on the EU's Fiscal Compact.

The news makes an imminent return to borrowing in the bond markets unlikely, the traders said.

A spokesman for the National Treasury Management Agency (NTMA), which manages the Irish debt, declined to comment.

"This introduces an event risk that had previously been discounted as unlikely, so will inject some nervousness into a market," said Donal O'Mahony of Davy Stockbrokers.

However, he thinks bonds will recover in the long-term.

The yield or cost of borrowing on Irish bonds due to be repaid two years from now started to rise immediately after Taoiseach Enda Kenny told the Dail that a referendum will be held.

The rise was small, but traders expect further rises.

Prices are now expected to remain volatile until at least after the referendum is held.

It comes after a long period of good news in the bond markets that has seen Irish bonds outperform their peers, thanks to confidence among international investors that the country is recovering.

Yesterday saw the second round of the ECB's Long-Term Refinancing Operation (LTRO) that pumped vast amounts of cheap loans into eurozone banks.

It's good for bond prices because many will use the cash to buy the Irish government debt.

It's a contrast with January when the NTMA used the earlier LTRO to convince banks to swap some of their existing Irish bonds for bonds due a year later.

Many investors expected a repeat when the second round of ECB cash was released, but that is now seen as unlikely.