Irish Bonds Rise, Yields Drop to Record in Market Return

By Lucy Meakin  Mar 13, 2014 3:47 PM GMT+0200  0 Comments  Email  Print

Bloomberg

Ireland’s 10-year yield fell to a record as the nation auctioned government bonds for the first time since 2010, the latest sign the euro region’s financial woes are abating.

Italy’s bonds also advanced as the Treasury in Rome sold 7.75 billion euros ($10.8 billion) of debt due between 2016 and 2037. The average yield to maturity on securities from Greece, Ireland, Italy, Portugal and Spain fell to the lowest in the history of the euro area this week, according to Bank of America Merrill Lynch indexes, as investors return to markets they shunned during the region’s debt crisis.

“Whether we look at Spain, Italy, Portugal or corporates, they’re all doing well,” said Ciaran O’Hagan, head of European rates strategy at Societe Generale SA in Paris. “What the governments need is higher growth or higher inflation to make their debt sustainable. These low yields give them the opportunity to try to engage in serious reforms in order to set the ground for higher growth in years to come.”

Ireland’s 10-year yield fell one basis point, or 0.01 percentage point, to 3.03 percent at 1:46 p.m. London time after touching a record-low 2.99 percent. The rate has fallen from a euro-era high of 14.22 percent that was set in July 2011 amid concern the nation may struggle to pay its debt. The 3.4 percent bond due March 2024 rose 0.085, or 85 euro cents per 1,000-euro face amount, to 103.14.

Irish Auction

After a three-year hiatus from bond auctions while it was under the protection of an international bailout, Ireland sold 1 billion euros of the March 2024 bonds to yield 2.967 percent, the Dublin-based National Treasury Management Agency said. That’s the lowest on record for a 10-year auction. Investors bid for 2.9 times the amount of debt sold.

The bonds stayed higher after a report today showed Irish gross domestic product fell 2.3 percent in the fourth quarter from the previous three-month period.

The rate on German 10-year bunds was little changed at 1.59 percent. The additional yield investors demand to hold Irish 10-year bonds instead of benchmark bunds narrowed one basis point to 1.44 percentage point. It tightened to 135 basis points on Jan. 7, the lowest since April 2010.

“It reflects a significant improvement in the outlook for the Irish economy and debt,” Sandra Holdsworth, an Edinburgh-based investment manager in the fixed-income team at Kames Capital Plc, wrote in an e-mail before the sale. Kames has the equivalent of $88 billion of assets under management. “We are constructive on this yield differential. We also expect the credit outlook for Ireland to improve further and for the Irish economy to continue its recovery.”

Banking Collapse

The average yield on bonds from Greece, Ireland, Italy, Portugal and Spain fell to 2.438 percent on March 10, the Bank of America Merrill Lynch index shows. That’s down from more than 9.5 percent in 2011, when the region was rocked by concern nations would struggle to service their debt, risking a breakup of the currency bloc.

Ireland, suffering a banking collapse that threatened to destroy the economy, sought a bailout in November 2010. It became the first euro-area country to emerge from a rescue program in December last year. The nation’s bonds have returned 4 percent this year, according to Bloomberg World Bond Indexes. Italy’s gained 4.4 percent and Germany’s earned 2.3 percent.

Italy’s 10-year yield fell one basis point to 3.41 percent after reaching 3.36 percent on March 10, the lowest in more than eight years.

Renzi Reforms

The Rome-based Treasury sold notes due in December 2016 today at an average yield of 1.12 percent, the lowest on record. Prime Minister Matteo Renzi yesterday pledged 10 billion euros of tax cuts for lower-income workers and easier labor regulation to stimulate hiring and Italy’s lower house of parliament passed an election-law bill.

“Today’s BTPs auction was smoothly received as market perception about the current political situation is more optimistic and recent news on the lower house voting in favor of the electoral reforms underpin the idea that Italy is slowly emerging from a prolonged period of stickiness,” Annalisa Piazza, senior fixed-income strategist at Newedge Group in London, wrote in a note to clients.

Greek 10-year bonds fell for fifth day after data showed unemployment increased to 27.5 percent in the fourth quarter, from 27 percent in the previous three-month period. Greeks aged between 15 and 24 had the highest out-of-work rate at 57 percent, the Hellenic Statistical Authority report showed.

The 10-year yield climbed eight basis points to 7.20 percent, set for the biggest weekly increase since January.

To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net

To contact the editors responsible for this story: Paul Dobson at pdobson2@bloomberg.net Keith Jenkins, Mark McCord