Irish bond yields hit record lows ahead of auction

Wednesday 12 March 2014 18.13
Irish 10-year yields fell to as low as 3.02%, a record low according to Reuters historical data
Irish 10-year yields fell to as low as 3.02%, a record low according to Reuters historical data

Irish government bond yields have hit record lows a day before Dublin returns to the market with its first regular debt auction since it was forced to seek an international bailout three years ago.

The drop in yields pointed to strong demand for tomorrow’s sale when Ireland aims to raise €1 billion in an auction of 10-year bonds.

Analysts say the sale will mark the full normalisation of Ireland’s access to financial markets following its exit from the EU/IMF bailout late last year.

In 2012 the European Central Bank's promise to buy the bonds of a country that got into trouble and expectations that it might ease monetary policy further this year have also boosted demand for Irish bonds.

The country's syndicated debt sales in recent months have been significantly oversubscribed and tomrrow’s auction is expected to attract hefty bidding as well.

Irish 10-year yields fell to as low as 3.02%, a record low according to Reuters historical data.

The bonds outperformed their peripheral peers, which was particularly impressive given that yields usually rise before a debt sale as investors make room for the new paper.

"I would be pretty surprised if we didn't see a solid auction tomorrow," said Alan McQuaid, chief economist at Merrion Stockbrokers. 

"The fact that there's no concession is indicative of the general market euphoria ... Irish fundamentals are clearly in a better shape than Portugal and Italy and Spain."

Irish 10-year yields have tumbled from levels close to 15% at the peak of the euro zone debt crisis. Two-year yields traded 0.61%, versus 25% in 2011.

Commerzbank strategist Michael Leister said there was little scope for the yields to fall further as "investors might now opt for govvies with a bit more (yield) pick-up like Italy and Spain and probably even Portugal."