Strong Demand Drives Ireland’s Rates Lower

Strong Demand Drives Ireland’s Rates Lower
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Ireland’s 10-year government bond yields dove to a 3.27% yield Tuesday, a ten year low, driven on the back of a strong bond syndication offering. Ireland’s debt to GDP ratios continue to remain high at 104%, according to Finance Dublin.

Ireland out of the woods?

As ten year interest rates in Ireland approach the zone of US ten year yields, which recently topped out just above 3%, Ireland’s low relative yield points to the island nation gaining trust from institutional investors in regards to its ability to recover from its property market crash and the EU / IMF bailout program launched in 2010, a report in Reuters said.  “This is a very well received issue … it is pretty supportive of the Irish going their own way,” DZ Bank strategist Christian Lenk was quoted as saying.  “Obviously anything could happen … but it increases the probability that Ireland is out of the woods by a very convincing degree.”

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A major test for Ireland will come on January 17 when Moody’s Corporation (NYSE:MCO), the only credit agency to rate Ireland below investment grade, will review its ratings.

Eurozone government debt has been a major concern for institutional investors. In particular, the debt of Greece, Spain, Portugal and to a lesser extent that of Italy and France have been a major issue for institutional bond buyers. Yet as Ireland successfully navigates a bond auction, analysts point with increased confidence towards other troubled sovereign debt issues.

Increased performance in Eurozone

“Ratings are bottoming out,” KBC strategist Piet Lammens said in the Reuters article. “There is a general idea in the market that the European crisis is almost over.”

Spanish 10 year yields dropped to 3.81% and the benchmark German Bund was yielding 1.90%.  Portuguese bonds have been a strong relative performer in the Eurozone.  Ten-year yields have fallen from nearly 6% to near 5.50% in a matter of months and Portugal is due to be rated by Moody’s Corporation (NYSE:MCO) Friday of this week and by Standard & Poor’s one week later.  The Reuters article noted that analysts expect the ratings to at least remain stable. Not everyone is positive regarding Eurozone government debt. The publication Money Week notes that Irish and the little-discussed problem of British debt remain at historically high levels.

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