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Irish-German Government Bond Yield Spread Widens to Record on Bank Concern
Irish 10-year bonds fell and German bunds surged, widening the so-called yield spread to a record and surpassing the level it reached before the European Union and International Monetary Fund announced a rescue plan in May.
The yield on Irish 10-year debt rose 13 basis points relative to benchmark German bunds to 318 basis points. Investors are concerned the cost of rescuing Anglo Irish Bank Corp. will exceed the maximum 25 billion euros ($32 billion) forecast by the central bank, which is equivalent to 15 percent of the nation’s annual gross domestic product and 75 percent of its tax take.
“The Irish story is under scrutiny and there are sizeable issues with regards to banking recapitalization,” said Padhraic Garvey, head of developed-market debt strategy at ING Groep NV in Amsterdam. “However, much of the spread widening is not an Irish credit issue; it’s down to a rally like we’ve rarely seen before in the bund.”
German 10-year yields fell 11 basis points to 2.18 percent as of 4:10 p.m. in London, after earlier reaching a record low of 2.13 percent. Irish yields climbed four basis points to 5.46 percent.
The Irish-German spread is the first to widen to a record among the so-called peripheral euro-region nations since the 750 billion euro ($953 billion) bailout package was announced on May 8.
The Greek-German spread widened 29 basis points to 891 basis points, the highest since it set a record 973 basis points on May 7.
The government took over Anglo Irish, which bankrolled many of Ireland’s property developers during the country’s building boom, after losses surged amid a slump in real-estate prices, which dropped by half since peaking in 2007.
Irish Central Bank Governor Patrick Honohan said the spread is “ridiculous,” the Daily Telegraph newspaper reported on Aug. 12 when it was at 288 basis points.
To contact the reporter on this story: Matthew Brown in London at mbrown42@bloomberg.net
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