PRODUCT PROFILE

Latest Dublin Prices

Irish bond yields fall after Anglo deal

Thursday, February 07 16:41:41

Yields on Irish bonds fell sharply this afternoon following what Taoiseach Enda Kenny called an "historic" deal with the ECB on Anglo's Promissory Notes.

Yields on benchmark Irish 2020 bonds, which rose to a high of almost 15 percent 18 months ago when the euro zone debt crisis was at its height, fell 10 basis points to 4.041 percent after Kenny's speech.

Borrowing requirements will be cut by 20 billion euros over the next decade and 1 billion euros will be shaved off its annual budget deficit, still proportionately among the highest in Europe despite years of tax rises and spending cuts.

"The new plan will likely materially improve perceptions of our debt sustainability in the eyes of potential investors in Ireland," Mr Kenny said.

"A successful Irish exit from the bailout by the end of this year would prove that a combination of intensive national reform efforts and European solidarity can deliver results."

"It certainly is unusual in the history of the crisis that we are actually being surprised in a positive way by the scale of the response," said Austin Hughes, chief economist at KBC Bank. "Normally we have seen underachievement and overpromising.

"The early indications are that this will make a material difference for the outlook on the Irish economy."

The Government struck a long-awaited deal today to ease the burden of debts the Fianna Fail administration took on to rescue its banking system in a way that will cut its budget deficit and borrowing needs and put it on track to exit the bailout on schedule.

Taoiseach Enda Kenny won European Central Bank (ECB) approval to stretch the cost of bailing out Anglo Irish Bank over 40 years, ending a high stakes saga that has preoccupied the nation for nearly two years. It was due to pay it off in 10 years, straining the state's finances and hobbling the economy.

"Today's outcome is an historic step on the road to economic recovery," he told a packed Dail. "It secures the future financial position of the state."

Mr Kenny's jubilant speech met with sustained applause from government supporters in the chamber and stony silence from the opposition. There was an unemotional reception to the deal in Frankfurt, where ECB President Mario Draghi said simply that the Governing Council had unanimously "taken note" of the Government's plan.

The low-key assent marked one of the greatest triumphs for Enda Kenny's government, which had staked its credibility on a deal.

Technical negotiations between the ECB and Irish officials have dragged on for nearly two years, with the central bank conscious that any deal given to Dublin to ease the crunch in debt repayments could set a precedent for other countries, such as Spain, which are also dealing with large bank debts.

However, European leaders were also keen to offer a success story from the region's debt crisis to encourage both voters and potential investors. Replacing promissory notes, or IOUs, given by Ireland to the former Anglo Irish with longer-term government bonds will help the country emerge from the policy strictures of an EU-IMF bailout package on schedule this year.

Under the terms of the deal, first reported by Reuters on Wednesday, Anglo's promissory notes, with an average maturity of between seven and eight years will be exchanged for government bonds with an average maturity of over 34 years. The first principal repayment will be made in 2038 and the last in 2053.

Kenny rushed through emergency laws to liquidate Anglo Irish in the early hours this morning, the first part of a plan to avoid having to keep paying E3.1 billion annually on the Anglo Irish promissory notes.

That annual payment was equivalent to more than E670 for every single person in the country.