Wednesday, January 25, 2012

Yields continue to fall

The eight-week downward run in Irish government bond yields continues.  Here are the indicative yields as calculated by Bloomberg and their close yesterday.

The five-year yield as calculated by Bloomberg is approaching what could be considered sustainable.  In fact both Italy and Spain have been forced to issue bonds at similar rates in the period around Christmas.  Here is an image of the eight-week fall.

Bond Yields 3M to 25-01-12

Before the current crisis the five-year yield on Irish government bonds was generally between 3.5% and 4.0%.  Last July this yield was over 17% and getting back to anything like normality before the end of the EU/IMF programme seemed like a forlorn hope. 

With the debt mountain we have now accumulated a return to such levels is unlikely.  At best we could probably hope to see yields of 4.5% to 5.0%.

Here are the actual closing prices and yields of outstanding government bonds for trades recorded with the Irish Stock Exchange yesterday.

Outstanding Bonds 24-01-12


  1. why do you think they are falling?

    has the situation improved in Ireland?

    1. Hi Al,

      I don't think the situation has improved in Ireland but I think the expectations about how bad it can get have narrowed.

      Up to now there have been doubts about how much money will have to be poured into the banks and whether the fiscal deficit would continue to grow. We now seen to have a handle on both of these and much of the uncertainty has been removed.

      I think it is this reduction in uncertainty rather than any improvement in performance that has led the drop in yields. We are still in a huge hole but there seems to be an acceptance now that we have our skeletons out of the closet and we know how deep the hole is going to get.

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