Bond markets indifferent to formation of Dáil majority
It is safe bet to say that the eyes of the financial world will be elsewhere when the Dáil next meets, on March 10.
During the election campaign, the spectre was raised that Ireland would face higher borrowing costs, just like Portugal and Spain when their recent elections produced inconclusive outcomes.
Ireland, Portugal, and Spain were all linked in needing to tap international bailout aid during the crisis.
After elections late last year, Portuguese and Spanish voters stripped their right-of-centre governing parties of working majorities.
Madrid continues to struggle to form a government following its election two months ago though Socialists and a centrist party last week renewed their pitch to form a coalition — in the face of opposition from both the right and the left.
Spain — like Ireland — posted unexpectedly high growth rates last year, though unemployment remains significantly higher than here.
Following elections in October, a new left-of-centre government in Lisbon picked a fight with Brussels over the pace of reducing its budget deficits. Portugal’s unemployment rate has fallen sharply.
It, too, emerged on schedule from an official bailout programme a few months after Ireland, but its high national debt, relatively low growth outlook and still shaky banks have raised concerns about how it will reduce its large debt.
For Lisbon, the yield of borrowing on its 10-year benchmark bond climbed above 4%, way above the the rate of 1% on the equivalent Irish 10-year bond.
Bond market watchers however say that a markedly negative reaction by the markets to the outcome of the election here is highly unlikely. Back in 2011, bond markets were studying every move of the election campaign, but the landscape has since changed.
By way of evidence, analysts point to the most recent bout of uncertainty for Irish bonds, in December.
The yield jumped in a few minutes by as much as 30 basis points, or 0.3% — a huge movement for international debt markets.
But the move was driven by disappointment over the scale of financial supports offered by ECB president Mario Draghi.
The markets voiced their disappointment that ‘Super Mario’ had done a lot less than anticipated to extend the ECB’s monthly €60bn bond-buying programme.
“I can see a very muted market reaction here.
"The market is not going to panic about Ireland.
"It has got bigger things to do and I can’t see it panicking about Ireland on the basis of having a difficult negotiation of a month or so in forming a government,” said Peter Brown, director of education at the Institute of Investing and Financial Trading.
“If you look at [Irish] bond yields on Friday they were below 1%. So they are not too worried.
"The big issue is whether the ECB on March 10 will have more stimulus,” said Alan McQuaid chief economist at Merrion Capital, referring to the date of the next ECB meeting.
Coincidentally, March 10 is the date when the Dáil is to reconvene after the election.
All bets are that the eyes of the financial world that day will be on Frankfurt, and not Kildare St.
