Greek fears may hit Irish bonds for weeks to come

IRISH DEBT:THE AGENCY charged with managing the State's debt could comfortably afford to skip its next bond auction because of market volatility, analysts said yesterday.

The premium charged for Irish 10-year debt over the German benchmark equivalent rose to 2.55 percentage points at one stage, before settling back to 2.23 points late yesterday afternoon.

Alan McQuaid, chief economist with Bloxham, said Greek contagion fears would probably hit Irish bonds for some weeks to come. This could persuade the National Treasury Management Agency to consider bypassing its next bond auction, due in mid-May, he suggested.

“They’re not in dire straits,” he said, pointing to the €23 billion the agency holds in cash balances and the €25 billion it controls in the National Pensions Reserve Fund. “Their funding needs are very low,” he said, adding that the agency would hope the Greek crisis could be solved before the next auction debt arises.

Deirdre Ryan, an economist with Goodbody, was equally reassured by the State’s funding position, also pointing out that the NTMA “could afford to sit tight” if necessary.

A less positive outlook came from London-based Barclays analyst Marek Sasura, who yesterday said he would not “rule out” a downgrade of Ireland’s debt over coming days. His comments came in a note to investors, issued before ratings agency downgraded Spain’s debt yesterday afternoon.

“SP tends to cluster its ratings announcements and, with negative outlooks for Spain and Ireland, we would not rule out further announcements in these peripherals in the coming days,” wrote Mr Sasura.

A downgrade of Ireland’s debt would place further pressure on the cost of borrowing.

The NTMA yesterday continued an international roadshow, which is designed to convince key investors of the merits of buying Irish debt. The roadshow began in London on Tuesday and continued in Paris yesterday. It will move on to other European cities, including Frankfurt, before shifting to the US and the Far East. NTMA chief executive, John Corrigan, said on Tuesday that the Republic would “easily” weather the effects of the Greek problem, which some fear will undermine the euro zone.

Willem Buiter, chief economist with Citigroup, was among the more positive debt analysts yesterday, arguing in a paper that the euro area and the EU “could come out of this crisis stronger than it went in”. He said this would require the creation of a European Monetary Fund and a special recapitalisation fund for “systemically important cross-border financial institutions”.