Market fears push cost of Irish bonds to record high

THE yield on 10-year Irish bonds touched new highs yesterday as markets worried about the nation’s ability to cope with its surging debt that includes €50 billion in a bailout of the Irish banks.

International reports said renewed focus on peripheral euro states had increased investor worries about debt defaults in some countries, including Ireland.

The mood surrounding the national finances darkened further as subordinated bondholders in Anglo sent out a clear signal they would block moves on a debt buyback by the bank that would leave them with a loss of over €1.3bn on their investments.

That news followed confirmation by the Department of Finance yesterday it had repaid almost €8bn of Anglo debt on September 30 to senior bond holders.

Labour’s finance spokesperson Joan Burton branded the Anglo situation a “disgrace”.

Anglo has already been given commitments of €29.28bn from the taxpayer, of which €4bn has already been paid out, she said in a statement.

On September 30, she said Finance Minister Brian Lenihan said the final bill for Anglo could be even €5bn higher than the above figure, pushing the total cost of the Anglo bailout alone “to nearly €20,000 for every person working in the country”.

However, it has emerged that the Anglo debt fell due for repayment at the end of September and was covered by the state guarantee.

A Department of Finance spokesman said the repayments do not add to the €29bn-plus package already signed off on by the state. The full payment however, runs counter to the aspirations of Matthew Elderfield, the Financial Regulator, that the state should try to negotiate more favourable terms with senior bond holders.

On October 7, Elderfield held open the possibility of negotiating better repayment terms with senior bond holders.

He stressed that could only be done on an agreed basis and could not be imposed.

Meanwhile, overseas subordinated bond holders facing losses of €1.3bn warned they will vote against the deal that would result in such severe losses, according to a statement from Houlihan Lokey, advisers to the investor block.

As the furore gathers about the state of Ireland’s national debt, the extra yield demanded to hold Irish 10-year bonds over German debt rose to 443 basis points yesterday and the 10-year benchmark yield hit a record 7.2% before falling back to 6.94%.

The renewed pressure comes as other eurozone peripheral debt also under-performed German bunds and the cost of insuring Irish and Portuguese bonds (credit default swaps) also rose.

Previous analysis suggested that as the Government identified the amount of fiscal adjustment required, the cost of bonds would fall.

That has not happened.


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