Swiss reject Irish bonds as collateral

IRISH government bonds have been rejected as a form of collateral by the Swiss central bank.

The statement was published on the bank’s website yesterday and a spokesman for the bank said later that the bonds “did not meet the criteria” against which the bank was prepared to lend.

The criteria state that for a security in a foreign currency to be eligible as collateral, the issuer’s country of domicile must have a minimum rating of AA-/Aa3.

Last month, Moody’s slashed Ireland’s rating by five notches to Baa1 from Aa2 and warned that more downgrades may follow.

The move by the Swiss bank means bonds issued by the Government as well as Allied Irish Banks, Anglo Irish Bank, Irish Life & Permanent, and Bank of Ireland will no longer be acceptable as collateral from those wishing to raise short-term funding from the Swiss central bank.

Alan McQuaid, chief economist at Bloxham Stockbrokers, and a number of outside commentators, said yesterday the move did not have major implications for the Irish economy in the current situation.

“It’s a technical Swiss issue,” said Mr McQuaid.

In a separate review Michael Dicks, chief economist at Barclays Wealth, said the crisis raised doubts about the current state of monetary union.

With pressures on states like Ireland, Portugal and others, the possibility of a two-tier euro cannot be ruled out, he said.

The other prospect is a complete wind-down of the euro, a scenario most analysts regard as unlikely given the huge costs and practical administrative difficulties involved.

Meanwhile the first issue of bonds by the eurozone to fund its bailout of Ireland attracted demand of nearly four times the offer, with €19 billion bid for €5bn worth of bonds. The yield, or return on investment, was 2.55% for the bonds set to expire in December 2015, at the lower end of expectations, HSBC bank said.

Although the yield is above that paid by eurozone countries with solid finances, it is considerably lower than the 7.78% yield on Irish five-year bonds.

Denmark’s biggest pension fund, ATP, has also abandoned bonds issued by troubled European economies.

A spokesman for the fund said for a long time “we have completely avoided government debt issued by Greece, Ireland and so forth — our European government bond holdings only include Danish, German and, to a lesser degree, French bonds”.

Meanwhile the Department of Finance has confirmed that Ireland expects to receive the first tranche of funds from an €85bn international aid package sometime next week.