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Irish 2-year bonds fall below zero

Friday, September 05 12:12:06

The yield on Irish two-year sovereign bonds fell below zero for a time this morning as the ECB's rate cuts and openness to a large-scale bond-buying program pushed investors towards riskier assets.

Ireland's two-year yield fell two basis points, or 0.02pcage points, to 0.004 per cent at 8:40am after dropping to as low as minus 0.004 per cent, the least since Bloomberg began collecting the data in 2003. The 4.6 per cent note due in April 2016 rose 0.015, or 15 cents per 1,000 face amount, to 107.365.

An expected ceasefire between Ukraine government forces and pro-Moscow separatists prevented sharp yield falls in top-rated German Bunds, a traditional hedge against geopolitical concerns.

The ECB cut its main refinancing rate to 0.05pc, raised the penalty for banks keeping money overnight in central bank deposits to 0.20pc, and announced a new program of asset-backed securities and covered bond purchases.

ECB President Mario Draghi also left the door open to bond purchases with newly printed money, a tool known as quantitative easing, or QE, although questions remain over German resistance to such a step.

"This was a pretty dramatic step. All they've got left to do now is full QE," said Alan McQuaid, chief economist at Merrion Stockbrokers.

Spanish and Italian 10-year yields fell 5-7 basis points to 2.11pc and 2.31pc, respectively. Italy's hit a record low 2.28pc earlier in the day.

"The main beneficiaries are the peripheral markets and I still think there is scope for spreads to narrow over Bunds, particularly in Spain," said Nick Stamenkovic, bond strategist at RIA Capital Markets.

"People are still searching for yield. While the ECB underpins the short-end of the curve, investors are going to look to extend duration."

Two-year yields were negative in Germany, the Netherlands, Belgium, Austria, France and Finland - meaning investors are effectively paying those governments to hold their money. Ireland's two-year yields were close to zero.

The highest yielding two-year bond in the euro zone was Portugal's at 0.59pc, down from over 22pc at the height of the crisis in 2011.

(BusinessWorld and Reuters)

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