Draghi’s Bond Rally Means Bailed-Out Ireland Can Borrow for Free

Four years ago, Ireland had to be bailed out by its European Union partners. Today investors are paying to lend it money.

Ireland joined nations from Germany to Austria and Finland as its two-year note yield dropped below zero for the first time. Irish 10-year bond rates also dropped to record lows along with Italy’s after European Central Bank policy makers yesterday cut their key interest rate and signaled at least 700 billion euros ($906 billion) of aid to support the flagging euro-zone economy. A report today confirmed the region’s economic recovery ground to a halt in the second quarter.

Negative yields reflect “ECB policy but also reflect a mounting belief in the lack of positive prospect for the European economy,” said Luca Jellinek, head of European rates strategy at Credit Agricole SA’s investment banking unit in London. “This is good news for the periphery.”

Ireland’s two-year yield fell two basis points, or 0.02 percentage point, to 0.004 percent at 10:04 a.m. London time after dropping to minus 0.004 percent, the least since Bloomberg began collecting the data in 2003. The 4.6 percent note due April 2016 rose 0.015, or 15 euro cents per 1,000-euro face amount, to 107.365.

A negative yield means investors buying the securities will get less back than they paid when the debt matures.

Yield Surge

The two-year yield surged to as high as 23.503 percent in July 2011, less than a year after the nation sought a 67.5 billion-euro bailout as its banks came close to collapse in the wake of western Europe’s worst real-estate market bust.

Two-year rates are also negative in Austria, Belgium, Finland, France, Germany and the Netherlands, as well as non-euro nations Denmark and Switzerland, according to data compiled by Bloomberg.

Ireland’s 10-year yield slid as much as four basis points to 1.703 percent, while Italy’s tumbled to 2.275 percent. The benchmark German 10-year bund yield declined one basis point to 0.96 percent.

Gross domestic product in the three months through June was unchanged from the first quarter, when it increased 0.2 percent, the European Union’s statistics office in Luxembourg said today. The reading confirmed Eurostat’s Aug. 14 estimate.

Euro-area government securities returned 10 percent this year through yesterday, Bloomberg World Bond Indexes show. Ireland’s have earned 12 percent and Germany’s 6.8 percent.

To contact the reporters on this story: Lucy Meakin in London at lmeakin1@bloomberg.net; Eshe Nelson in London at enelson32@bloomberg.net

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

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