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Irish bond yields fall to an 8-year low

Tuesday, January 07 11:35:58

Ireland's 10-year government bond yields plunged to eight-year lows today as the country's first debt sale since it exited an international bailout drew bumper demand.

Investors bid more than 9 billion euros for the new 10-year bond sold via syndication, about three times the amount expected to be priced later in the day. The bond was offered with an yield of about 3.5 percent, a small premium over Dublin's current 10-year benchmark.

Analysts said the deal was final confirmation that investors trusted Ireland to recover unaided from its property market crash, having just come through an 85 billion euro EU/IMF bailout programme undertaken in 2010.

Marie Diron, Senior Economic Adviser to the EY Eurozone Forecast said the bond issue is testament to the fact that Ireland has turned a corner.

"Ireland placing a 10-year bond in what is a very busy month for government bond issuance is a testament to investors’ confidence in the country’s ability to finance itself," she said.

"The higher yield on today’s bond issue compared to say, German bonds, is very attractive as investors look for returns and perceive very little risk about the sustainability of Irish public finances. We expect that the debt to GDP ratio will peak this year and will fall below 100pc at the beginning of the next decade".

Irish 10-year bond yields fell 9 basis points to 3.27 percent, their lowest in eight years, according to Reuters historical data. That brought the premium they offered over German Bunds, the euro zone benchmark, to 138 bps, its lowest since April 2010. The spread over UK gilts fell to 30 bps, the tightest since March 2010.

"This is a very well received issue ... it is pretty supportive of the Irish going their own way," DZ Bank strategist Christian Lenk said.

"Obviously anything could happen ... but it increases the probability that Ireland is out of the woods by a very convincing degree."

Some analysts said the deal offered proof of increased market access and should be supportive for Ireland's credit ratings. Moody's, the only big agency to rate Ireland below investment grade, is due to review its ratings on Jan. 17.

"A successful sale today ... arguably increases the odds of Moody's opting to return the country to investment grade," said Richard McGuire, senior rate strategist at Rabobank.

"A return to investment grade across the board would provide an additional fillip as regards the long-running bullish momentum in the Irish debt market."

The cost of insuring Irish debt against default via five-year credit default swaps fell 4 bps to 110 bps, the lowest since November 2008, according to data from Markit.