MARKET REACTION:HAVING RISEN for most of the day, Irish bonds fell yesterday afternoon, on the back of the announcement by AIB that its customer deposits had shrunk 17 per cent this year.
Irish bonds had been steadily rising for the last two days as the bond market reacted positively to the commencement of talks between the Irish Government, the IMF and European representatives in Dublin.
However, this trend was reversed yesterday afternoon following the AIB statement. As a result the yield on Irish bonds - which is inversely proportional to the value of bonds - rose, closing at 8.15 per cent. Irish bond yields climbed to more than 9 per cent late last week, precipitating the crisis talks which are taking place this week.
As European stock markets closed for the weekend, most stock markets fell, as the market awaited more specific news from Dublin. The Irish stock exchange managed to finish the week higher, with both Bank of Ireland and Allied Irish Banks gaining ground, which traders explained as a "relief rally" on the back of anticipation of an imminent rescue package.
However, while bank shares rose, the value of the Irish banks' bonds - the debt they issue to investors to fund themselves - continued to decline, signalling concern from bondholders that they may be forced to take a write-down as a condition of any IMF-EU rescue package. Anglo Irish and Nationwide bondholders have already been told that they will be required to take a write-down on their investment.
