IRISH BOND yields declined yesterday in the wake of a new deal agreed by EU leaders that will see the cost of Ireland’s bailout fall.
The Iseq joined in the relief rally evident across European equity markets, with the benchmark Irish index firming up by 1.4 per cent.
Greek, Spanish and Italian bonds rose after officials drew concessions from Germany, the European Central Bank and investors for a twin-track strategy to support Greece and ensure its woes don’t spread.
The yield on Ireland’s two-year bonds, which opened at 19.188 per cent, tumbled more than 4 per cent to 14.851 per cent at one point yesterday, the first time they have fallen below 15 per cent since July 6th.
The benchmark 10-year bond declined just under half a per cent to 11.887 per cent.
There may not have been “massive volume” in Irish bonds, but much-improved visibility over the approach being taken to tackle to the euro zone sovereign debt crisis was a positive factor, a Dublin trader said. “Markets like certainty,” he said.
“These measures are welcome because they create the best possible conditions for Greece and other peripheral countries to put their houses in order and hence limit the risk of contagion,” said Marco Valli, chief euro area economist at UniCredit in Milan. “Still, the market will continue to price some probability that troubled countries will not be up to the challenge.”
Greek two-year notes soared the most in 14 months yesterday, pushing the yield down 617 basis points to 27.64 per cent. Italian and Spanish bonds climbed for a fourth day, with the yields falling to 5.15 per cent and 5.52 per cent, respectively. Both exceeded 6 per cent last week.
The euro eased against the dollar as investors looked past the announcement of the rescue package for Greece to focus on how it will be carried out.
The shared currency dropped for the first time in four days against the dollar, falling 0.4 per cent to $1.4366, from $1.4425 on Thursday, after reaching $1.4439, the highest level since July 6th. The euro has still gained 1.5 per cent this week.
European shares ended the day and week higher yesterday, led by oil stocks, as the second bailout for debt-laden Greece gave an initial boost to investors’ confidence.
But while Greek banks rose strongly, Italian, Spanish and some core European lenders gave back some of the previous session’s hefty gains on concerns the deal would not be enough to prevent the debt crisis spreading in the longer term.
Greek banking stocks proved the standout gainers, with National Bank of Greece the top gainer, up 9.4 per cent, while Spanish lender Bankinter rose 6 per cent on forecast-beating earnings.
“The general view is that it appears to be a comprehensive deal that exceeded market expectations,” said James Knightley, senior economist at ING Bank NV in London.
“Consequently, we are seeing something of a relief rally. However, the underlying economic fundamentals remain concerning,” he added.
“We still have to calculate the contingent liabilities of the EFSF and finally the contingent liabilities of Germany from all these rescue operations,” said Kornelius Purps, strategist at Unicredit in Munich.
“But the markets are happy for the time being.” – (Additional reporting: Reuters, Bloomberg)
