No big General Election risk in Irish bonds

There is little to no significant political risk flashing red in Irish bond prices, senior experts have said, although that might change in the event that a hung Dáil leads to a prolonged period in forming a new government.

The yield or interest rate on the 10-year Irish bond was trading yesterday at 1.04%, up by only four basis points on the day, and little changed over the past week even as opinion polls suggest a growing probability of an inconclusive outcome to the election next week.

Outgoing Coalition politicians have cited increased yields for Lisbon and Madrid following their elections to point out the supposed political risks facing voters here.

Portugal’s 10-year bond was unchanged at 3.54% yesterday, but along with Spanish bonds, the yield had fallen significantly on Monday, as the international stock markets rout of recent weeks eased somewhat.

The 10-year bond rates for Spain and Italy rose six basis points and three basis points to 1.76% and 1.63% yesterday. There is “nothing at all as yet” in Irish bond yields to suggest markets are worried about the outcome of the election, said Peter Brown, director of education at the Institute of Investing and Financial Trading.

There was a risk the Irish 10-year yield could rise after an inconclusive election, but possibly only as high as 1.25%, because bond traders “love certainty and hate political uncertainty”, Mr Brown said.

Analysts say debt markets have much bigger concerns to worry about, and their eyes are set on what ECB president Mario Draghi has in mind next month to prop up eurozone bonds.

Mr Draghi left bond markets in a spin late last year when traders felt let down he had not extended the ECB’s armoury despite rock- bottom eurozone inflation.

Ryan McGrath, senior bond trader at Cantor Fitzgerald Ireland, said Portugal’s 10-year bond rate had fallen significantly from as high as 4.5% last week, when huge international risks haunted markets.

He said the Irish spread compared with core eurozone markets Germany and France had widened since the run-in to the election by a “modest amount”.

The funding demand facing the State however this year remains “incredibly light”, he said, with the National Treasury Management Treasury Agency is already well on its way to reaching its target funding of between €6bn and €10bn.

Mr McGrath predicted the funding outcome would fall at the lower end of the target figure because tax revenues were likely to fill up the exchequer coffers, and therefore lowering the amount the Government needs to raise in new debt.


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