Changes along the yield curve

The following image are screengrabs from Bloomberg for the yield on Irish government bonds over the past three months.  The top two are the 8-year and 5-year yields, while those across the bottom are the 3-year, 2-year and 1-year yields.  Click the image to enlarge.

The actual bonds on which these indicative yields are derived can be seen in the NTMA’s Daily Outstanding Bonds Report.

There are two things worth noting.  First, is the continued upward-sloping yield curve for Irish government bonds.  The yields as calculated by Bloomberg go from 1.59% over one year to 5.90% over eight years.

Second, is the differing performance of the bonds over the past three months.  The longer term yields in the top row show a big shift in the aftermath of the EU summit of  at the end of June but show little change since then.  The eight-year has slowly edged below six percent but the five-year is largely where it was in the days after the summit.

On the other hand the shorter term yields of three years and under have all declined steadily over the past three months.  The three-year and two-year were declining in advance of the summit, experienced a small drop after it and have continued downward since.

Over the past three months the three-year yield (which is well outside the window of the current EU/IMF funding programme has gone from over seven percent to just under three and a half percent.  The two-year was also above seven percent but in just three months has now dropped to just two and a half percent.  The clear view is that the D-day bond due to mature in January 2014, which at one stage represented a funding cliff of around €12 billion, will be repaid. 

This January 2014 bond is now yielding around 2.2% is now trading at a price of around €102.40 per €100 unit (coupon 4.0%).  Last July, this bond briefly fell to as low as €65 per €100 unit.  That is a rise of nearly 60%.

The one-year yield has also declined recently but that is within the timeframe of the EU/IMF funding.   It might also be a factor that trading volumes over this period may be low but the NTMA report does show that there are trades occurring at these yields.