International borrowing costs fall as split announced

THE cost to the Government of borrowing on the international markets fell slightly yesterday after plans to split Anglo Irish Bank into two separate entities were revealed.

The rise in Government bonds relative to benchmark German bonds narrowed the so-called yield spread by two basis points to 371 by late-afternoon in London after widening to a record 377 basis points earlier in the day.

The moves followed news that Anglo Irish is to be split into a funding bank and an asset recovery bank.

“It is intended that in due course the recovery bank will be sold in whole or in part or that its assets will be run off over a period of time,” the statement from Anglo Irish Bank said.

Earlier in the day, credit- default swaps on Ireland surged 21 basis points to 402.5, surpassing a previous closing high of 396 in February 2009, according to data company CMA.

Bank of Ireland and AIB have €16.7 billion of debt maturing this year, according to data compiled by Bloomberg.

Credit-default swaps on Anglo Irish Bank surged 79.5 basis points to 795.5, according to data company CMA, the highest since March 2009. The contracts imply a 50% probability of default within five years, CMA data show.

Portugal, Spain and Ireland, all of which saw their bond-yield spreads over Germany rise this week, probably won’t need support from the euro-region rescue fund, a senior politician from Chancellor Angela Merkel’s party said.

The Luxembourg-based €440 billion European Financial Stability Facility, headed by former European Commission official Klaus Regling, was set up in May as the Greek debt crisis threatened to spill over to other euro states.

“I see that the stabilisation fund is probably not going to be used and Mr Regling stressed that as well in the past days,” said parliamentary Finance Committee spokesman for Merkel’s Christian Democratic Union, Leo Dautzenberg.