Rising cost of Ireland’s borrowing condemned

CONDEMNATION of the rising cost at which Ireland is having to borrow funds widened considerably yesterday, as Irish bond yields continued to rise.

Yields on Irish Government bonds were up at around 6.3% yesterday, maintaining their rating as the highest in Europe, just a day after the National Treasury Management Agency (NTMA) successfully closed its ninth auction of the year.

The NTMA is likely to proceed with its final two planned bond auctions for the year – due to take place in October and November – and is hoping that yields narrow on the back of more clarity being gleaned on the full cost of the banking crisis.

The Government is set to publish its full estimate for the bail-out cost to Anglo Irish Bank (which has been spooking international investors for some time) before the end of this month.

However, one European economist – Willem Buiter of Citigroup – called the Irish-German yield spread “ridiculous” this week and was, yesterday, joined by commentators far and wide.

In a balanced report on Ireland’s fiscal challenges and sovereign balance sheet, NCB Stockbrokers said that the country’s bond yield spread over Germany is not consistent with the underlying fundamentals and debt profile, “especially as Ireland is fully funded until the second half of 2011 and, therefore, is not facing a liquidity crisis and does not have a solvency issue”.

According to NCB’s chief economist Brian Devine: “Ireland entered the crisis with a debt-to-GDP ratio of just 25%. The significance of this is that Ireland doesn’t have a large amount of bonds redeeming in the next number of years.”

The European media, too, has come out in favour of Ireland, agreeing that the yield is too high and that the actual strong demand for Irish bonds should be the real measure of trust in the country’s economy.