Wednesday, April 6, 2011

Bond yields fall

Since last Thursday’s stress test announcements yields on Irish government 10-year bonds have been falling.  Here is a graph from Bloomberg.

Bond Yields 1W to Apr 05

The peak is Thursday 31st March when the yield closed at 10.22%.  The stress test results were published later that evening and since the open on Friday the yields have been falling (though there has been some intra-day volatility).  The yield fell on Friday, again on Monday and continued on Tuesday when it closed at 9.68%.  In early trades this morning the yield has continued to fall and was at 9.64% as I write this.

The falling yields means there are buyers for Irish government bonds and the perceived probability of default is now lower than it was last Thursday.  However, we are still at the top of the yield mountain and have a very long way to descend before we can consider borrowing additional money from the markets.  The prospects of being able to do that before the end of the EU/IMF deal are improving but still shrouded in doubt. 

Here are the yields over the past 12 months.

Bond Yields 1Y to Apr 05

The recent falls have only brought the yields back to the level recorded around the 23rd March – just two weeks ago.  There is a lot of distance between the current rates and those recorded 12 months ago but we are going in the right direction.

UPDATE: (2pm) They're dropping like a stone.  Down to 9.31% now!

1 comment:

  1. Irish bonds are a hell of price if believe that there will not be a default. Even with a substantial default (25%), the 10 year bond has to represent very good value.

    PS. It is not possible to invest a pension fund in these. Neither New Ireland nor Irish Life offer Irish bonds as one of their pension funds.
    New Ireland do offer a "Euro" long govt bond fund. The weightings are
    Italy 38%, France 29% Germany 23%, Spain 9%,Finland 1%. Ireland doesn't rate.
    Is it not interesting that a country that is broke can afford to give tax reliefs to its citizens for pension contributions without specifying that the fund managers at least allow the option of investing in Irish bonds through a specific fund.
    I believe that the first Irish Minister for finance complained that the only role the Irish banks seemed to serve was as a conduit for money leaving the country.
    What has changed!