Ireland's cost of borrowing falls below that of France after tumultuous week

The gnarly issue of a cap on wholesale gas prices is set to come back on the table again
Ireland's cost of borrowing falls below that of France after tumultuous week

The yield or interest rate for Irish 10-year bonds traded on Friday at 2.74%, which implies that the Government can borrow for 10 years from investors at a relatively low cost. 

The cost for Ireland to borrow from debt markets has fallen below the cost of France following a tumultuous week for European debt markets.   

The yield or interest rate for Irish 10-year bonds traded on Friday at 2.74%, which implies that the Government can borrow for 10 years from investors at a relatively low cost. 

The yield has now fallen below the equivalent bond for France, which traded at 2.76%, and compares with the yield on the German 10-year bond of 2.14%. Government borrowing costs have risen across Europe in the past months to reflect the hikes in official rates by the European Central Bank. 

The focus continues on the rises in the cost of government borrowing for Italy and Greece, with their 10-year bond rates trading on Friday at 4.58% and 4.80%, respectively.

Ryan McGrath at Cantor Fitzgerald Ireland said that the financial turmoil in Britain in the past week had distracted attention from the outcome of the Italian elections. "It was the forgotten story of the week and will return," Mr McGrath said.

"The turmoil in UK financial markets in the aftermath of the mini-budget and the Bank of England's intervention in the gilt market have grabbed the headlines this week," Franziska Palmas, senior Europe economist at Capital Economics, said in a research note. "Could something like that that happen in the eurozone?" 

The yield on the British 10-year bond or gilt ended a tumultuous week trading at 4.12%, down from over 4.7% at the height of the crisis on Tuesday. The interest rate was still sharply up, by 0.35%, since before the ill-advised mini-budget of the new British government led by Liz Truss. 

Energy crisis

Meanwhile, European Union energy ministers backed an initial package of measures to tame the gas crisis, and the EU pledged to come forward with more next week as the crisis only intensifies.

Ministers signed off on a deal to curb power demand and grab profits from energy companies to redistribute to struggling consumers. But amid clamor for more action and criticism the commission has been too slow to act, Energy Commissioner Kadri Simson promised to do more.

The gnarly issue of a cap on wholesale gas prices is set to come back on the table again — even as it’s not clear consensus can be achieved. The commission insists that any price cap has to be accompanied by stricter demand cuts, and not all member states are ready for that. 

Proposals for an alternative gas benchmark and common gas purchases are also likely to get another hearing.

Overshadowing the meeting in Brussels was the sabotage earlier this week of the Nord Stream pipelines, which has thrown the focus onto security and prompted a rush to bolster defences. 

It comes as Vladimir Putin vowed his annexation of four occupied regions in Ukraine is irreversible, as the Russian president formalised Europe’s biggest land grab since World War II and accused the West of trying to subjugate his country. “They will become our citizens forever,” he told officials in a Kremlin ceremony before he and Moscow-installed leaders signed annexation documents. 

Additional reporting Bloomberg

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