Signs of stability

The build-up to the treaty vote has not spooked international investors as feared, evidenced by only slight ripples in our bond prices, says Conor Ryan

THE middle of May witnessed the first sign of jitters among investors when it came to assessing the impact of the upcoming referendum vote.

The country’s bonds climbed to their highest level since February, when the Government’s decision to hold the vote took the markets almost unawares.

Back then the price of Irish bonds spiked for a short time. But they settled again until the events in Greece, Spain and France reawakened panic in the common currency.

As far as Ireland is concerned, the lack of drama after February and the relative calm in the eurozone in early spring meant that for much of the build-up to next week’s vote there has been ambivalence towards what we would or would not do in the ballot box.

This contrasts massively with the focus of interest on Irish affairs in the lead up to the rerunning of the Lisbon referendum.

At that point speculation was growing about how we would handle our banking sector and we were the next story rather thanyesterday’s.

This time around, despite the energy of arguments at home, the international markets have had their focus elsewhere and mid-May was the only indication of potential ripples.

Based on the information supplied to investors there appears to be a consensus that the Irish vote will not matter or that other decision are far more important.

This is supported by a belief that the referendum will be passed, if not on May 31 at some point before it is due to be ratified.

There have been passingreferences to Ireland. This month, Credit Suisse issued a summary of potential market frights.

It referenced the Irish referendum once but its extended commentary was devoted to the potential upheaval in Greece and the ability or inability of Spain to contain its banking crisis.

There was no detailed analysis of the impact of the Irish vote.

This week Citigroup released an investor statement which outlined the risks looming for Ireland and the most imminent was the effect a Greek exit from the euro, which it said would happen on Jan 1, 2013, would have on sentiment towards us.

The reason for the lack of discussion on what our vote means appears to be evident in earlier commentary from rival banking forces.

When the referendum was announced Danske Bank issued a bulletin for traders written by senior economist Frank Øland Hansen.

It said there was undoubtedly dangers for a no vote but this outcome was unlikely and overall it did not pose the same level of threat to the rest of the eurozone as previous ballots had.

“The impact of an Irish no vote for the wider euro area and thus for market sentiment in general should, in our view, be much smaller than at previous Irish referendums.

“The other countries will go ahead with the European Stability Treaty as soon as 12 countries have ratified it,” he said.

Mr Hansen told investors the bank’s view was one of wary optimism, because Ireland would eventually get it right.

“We expect Ireland, after some opinion poll scares and perhaps some political wheeling and dealing and possibly a second vote à la Lisbon II, to vote yes eventually but this should not be taken for granted,” he said.

Mr Hansen’s commentary goes further than others but they remain on the same theme and that the Greek elections were of greater concern to Ireland than our own referendum.

The message late last week from KBC bank’s investor circular was that the shambles in Greece was once again spreading worry to Ireland and spooking the windier investors.

However, the undertone in its dispatch was not to fret too much as it believed the referendum would pass despite the Greek-inspired mid-May spike in the bond spreads.

“If the fiscal compact is rejected by the referendum, Ireland has no right to use ESM funds should the first bailout package not be sufficient.

“As the Greek destiny is now more uncertain than ever before, some investors might have chickened out. Recent polls, however, showed that the referendum would be approved,” it said.

An advisory brief for traders, produced by Global Investment Services urged caution because of a number of potential political upheaval, including where the treaty could be “used by voters as a proxy to express anti-euro sentiment”.

However, it did not attach any additional warning and said it remained positive about the longer term trends in the equities markets.

Separately, Ryan McGrath, a senior bond trader at Dolmen Securities has told international media that the referendum risk has had a greater influence on the Irish bonds that others’ suggested.

He said the concern was the victory of the Socialist Party in France could be seen to embolden those who want to direct Ireland on a different economic direction.

“The moves [in Irish bonds] are down to the increase in perceived risk for the Irish referendum... The ‘au revoir, austerity’ headlines have made it a little easier for the no camp,” he said.

However, either because there has been a shortage of surprise drama in this economy in recent times or other countries pose far larger problems, for once our affairs do not appear to be bothering international markets like we once did.


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