Ireland Tries to Stem Bond-Market Selloff With Debt Auction
Ireland's Finance Minister Brian Lenihan
Crispin Rodwell/Bloomberg
Brian Lenihan, Ireland's finance minister, stands with his budget report at the Department of Finance in Dublin.
Brian Lenihan, Ireland's finance minister, stands with his budget report at the Department of Finance in Dublin. Photographer: Crispin Rodwell/Bloomberg
Sept. 21 (Bloomberg) -- Stuart Thomson, international fixed-income fund manager at Ignis Asset Management, talks about the outlook for Ireland's government bond sale today and the euro-zone economy. He speaks with Maryam Nemazee on Bloomberg Television's "On The Move." (Source: Bloomberg)
Sept. 21 (Bloomberg) -- Stephane Deo, chief European economist at UBS AG, talks about the sustainability of Ireland's debt and today's bond auction. He speaks with Maryam Nemazee on Bloomberg Television's "The Pulse." (Source: Bloomberg)
Sept. 21 (Bloomberg) -- Eoin O'Callaghan, an economist at BNP Paribas SA, talks about today's Irish bond sale and the country's economic growth outlook. He speaks from London with Judith Bogner on Bloomberg Television's "Countdown." (Source: Bloomberg)
Ireland Tries to Stem Bond Selloff With Debt Auction
Crispin Rodwell/Bloomberg
Thirty-seven percent of those surveyed say Ireland is likely to default, more than double the rate three months ago, according to a quarterly poll of 1,408 investors, traders and analysts.
Thirty-seven percent of those surveyed say Ireland is likely to default, more than double the rate three months ago, according to a quarterly poll of 1,408 investors, traders and analysts. Photographer: Crispin Rodwell/Bloomberg
Ireland will sell as much as 1.5 billion euros ($1.96 billion) of bonds today as the government attempts to convince investors the country can avoid a European Union bailout.
One day after the premium on Irish 10-year debt over German equivalents rose to a record, the Dublin-based National Treasury Management Agency is offering between 1 billion euros and 1.5 billion euros of four- and eight-year bonds. The auction results will be announced after 10 a.m.
Investors’ concerns about the fiscal health of some euro nations are resurfacing four months after the EU announced an almost $1 trillion rescue package to stamp out contagion from Greece’s fiscal crisis. The spread on Irish debt over bunds yesterday exceeded 400 basis points as the government struggles to cap the cost of bailing out its banking system. In Portugal, the spread climbed as high as 399 basis points.
“This can’t go on,” said Alan McQuaid, chief economist at Bloxham Stockbrokers in Dublin, referring to Ireland. “We can’t afford rising bond yields indefinitely. If events keep deteriorating rapidly, then the risk that we need outside help rises.” At the same time, there will be “decent demand” at today’s Irish auction “as the yield is so high,” he said.
Irish Default?
Contracts insuring against an Irish default rose to a record 450 basis points yesterday from 421, according to data- provider CMA. Irish Finance Minister Brian Lenihan told reporters in Dublin he’s “concerned” about the jump in Irish spreads, which rose as high as 404 basis points yesterday and fell back to 395.7 basis points today.
The yields on bonds due to be sold today are “very good,” Willem Buiter, chief economist at Citigroup Inc., said in an interview with Dublin’s RTE Radio today. “People should realize that Ireland isn’t Greece and get the stuff.”
Portugal’s deficit widened in the first eight months of the year, the government said late yesterday, climbing to 9.19 billion euros from 8.74 billion euros a year earlier. By contrast, Spain cut its seven-month deficit in half.
Investors are selling Irish bonds partly on concern about the rescue of Anglo Irish Bank Corp., which was nationalized last year. Standard & Poor’s said in August that Ireland may have to inject as much as 35 billion euros “over time” into the bank. That’s equivalent to about a fifth of Irish gross domestic product. The government has injected 22.9 billion euros to date.
Narrow Range
Thirty-seven percent of those surveyed say Ireland is likely to default, more than double the rate three months ago, according to a quarterly poll of 1,408 investors, traders and analysts.
An assessment of Anglo Irish’s rescue that’s underway will help “narrow the range” of the estimated burden the banking system will place on the country’s finances, Irish Central Bank Governor Patrick Honohan said yesterday. The total Anglo Irish cost will be less than the numbers “touted around,” he said.
“Our base case remains that the government will not turn to the EU and IMF for a funding package,” said Gillian Edgeworth, an economist at UniCredit in London. That “would change very rapidly in the event that the banking sector as a whole in Ireland experienced a significant deposit outflow,” she said.
Edgeworth said that may occur if the government fails to pass a budget or banks announce further “significant writedowns.”
Prime Minister Brian Cowen’s government has been cutting public salaries as part of an austerity drive aimed at narrowing its deficit to 3 percent of GDP by 2014.
Leadership Style
The push comes as members of Cowen’s government express doubts about his leadership style. Tom Kitt, a lawmaker for Ireland’s ruling Fianna Fail party, said the party should meet to discuss its leadership. Lenihan, flanking Cowen at a press conference in Dublin late yesterday, said bond markets haven’t been affected by doubts over Cowen’s future.
“The most important rumblings around here are the rumblings we are seeing in international markets,” Lenihan said. He criticized opposition parties for “unhelpful” comments about the possibility of negotiating with Anglo Irish bondholders.
“Political instability as much as financial instability is what is now undermining Ireland’s position,” said Michael Noonan, finance spokesman for Fine Gael, the largest opposition party. “Political stability will not be restored by rearranging the deck chairs on the Titanic. ”
To contact the reporters on this story: Louisa Fahy in Dublin at lnesbitt@bloomberg.net; Dara Doyle in Dublin at ddoyle1@bloomberg.net
To contact the editor responsible for this story: John Fraher at jfraher@bloomberg.net
Rate this Page