Irish bond rally nears new milestone

Monday 12 May 2014 10.04
Irish yields are now on course to drop below those of US Treasuries
Irish yields are now on course to drop below those of US Treasuries

Irish yields dipped back towards record lows today, holding beneath equivalent UK government bonds, and poised for further impetus from an expected ratings upgrade from Moody's this week.

Having dropped beneath UK Gilt yields for the first time in six years last week, Irish yields are now on course to drop below those of US Treasuries. 

"At some point, European and US rates will sharply decouple, and we would expect Irish bonds to trade well through US Treasuries," said Marco Brancolini, a rates analyst at RBS. 

Irish 10-year yields opened 2 basis points lower at 2.66%.

Equivalent UK and US bonds were quoted at 2.71% and 2.63%, respectively.

The trend of ratings upgrades in the periphery was again confirmed on Friday, when first Standard & Poor's lifted Portugal's credit outlook to stable from negative, and then Moody's upgraded it by one notch. 

This provided fresh momentum to a peripheral rally that had seen Italian, Spanish and Irish yields hit record lows, and few expect any reversal of these gains with the European Central Bank ready to deliver fresh monetary stimulus next month. 

Scheduled releases of euro zone economic output and consumer prices on Thursday will be closely watched to see if they make ECB action more likely, while low levels of liquidity in the euro zone banking sector are also exacerbating money market tensions. 

Any escalation in unrest in Ukraine after anti-Kiev rebels declared victory in a referendum on self-rule could also lessen investors' overall risk appetite this week. 

However, traders say that Spanish and Italian bonds, once at the centre of fears of euro collapse, are now proving resilient to geopolitical shocks.

Both held just above record lows today, as did safe haven German Bunds.

Meanwhile, the National Treasury Management Agency is due to auction €500m of Treasury Bills on Thursday.