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Ireland’s Bond Yields Drop to Lowest Since 2005 After Bank Deal

Feb. 8 (Bloomberg) -- Ireland’s five-year note yields fell to the lowest in more than seven years, after the nation won an agreement to stretch out the cost of rescuing the former Anglo Irish Bank Corp.

Under the plan, dubbed ‘Project Red,’ Ireland will swap so-called promissory notes used to rescue the failed lender with 25 billion euros ($33.4 billion) of long-term government bonds with maturities of up to 40 years. The accord will ease the nation’s borrowing needs over the next decade by 20 billion euros by sidestepping the annual instalments that had been due on Anglo’s original bailout deal.

Finance Minister Michael Noonan said today that the drop in borrowing costs is the “most crucial” benefit from the accord, as the nation seeks to exit an international bailout program. The collapse of the Irish financial system after a real-estate bubble pushed Ireland close to bankruptcy, and forced the country to seek a 67.5 billion-euros bailout in 2010.

The accord with the European Central Bank increases “the probability that the sovereign will be in a position to regain full market access and exit the bailout successfully at the end of the year,” said Juliet Tennent, an economist at Goodbody Stockbrokers in Dublin, in a note today.

Ireland’s five-year note yield fell as much as 11 basis points, or 0.11 percentage point, to 2.80 percent, the lowest since October 2005. It was at 2.81 percent as of 1:24 p.m. London time.

Drip Feed

Under a deal agreed at the height of Ireland’s crisis three years ago, the government had been due to give Anglo Irish 3.1 billion euros a year for at least the next decade to pay down a central bank loan. Now, the first capital payment is due in 2038 and the last in payment will be made in 2053.

The bonds will be held by the Irish central bank, which will drip feed them on to market, starting with a minimum sale of 500 million euros of the securities before the end of next year. That accelerates to 2 billion euros a year after 2024.

The deal is “credit positive,” Moody’s Investors Service credit analyst Dietmar Hornung said in an interview yesterday.

He also said that the country’s sub-investment Ba1 grade rating remains appropriate. While the deal eases Ireland’s financing needs, it makes little dent on its debt levels.

General government debt will peak at about 122 percent of gross domestic product this year, up from 25 percent in 2007, according to the National Treasury Management Agency.

Seeking to cut that debt, Noonan said the government now will turn its attention to seeking a refund from Europe’s new rescue funds of the 30 billion euros it ploughed into lenders including Allied Irish Banks Plc and Bank of Ireland Plc.

Pony Up

While the European Stability Mechanism is being prepared to recapitalize banks in future, Ireland “had to pony up” to shore up its lenders in recent years, he said in an interview Dublin-based Newstalk radio today.

The cost to insure against Ireland reneging on debt payments using five-year credit-default swaps has dropped to 183 basis points from a peak of 1,196 on July 18, 2011. It’s “highly likely” that Ireland will regain full market access and be eligible for the ECB’s Outright Monetary Transactions bond buying program, Alessandro Giansanti, a senior rates strategist at ING Groep NV in Amsterdam, said in a note.

“This reduces to a large extent the risk of a restructuring event for Irish government bonds and it will push spreads to tighter levels,” he said.

To contact the reporter on this story: Joe Brennan in Dublin at

To contact the editors responsible for this story: Edward Evans at;

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