08 January 2013

WSJ: Ireland warns of lingering woes amid new bond offer

Ireland is still paying too much for borrowing in the bond markets in light of its tough clampdown on budgets, the head of its central bank said, as the country sought investors for its first bank-run bond since the 2010 bailout.

The comments from Patrick Honohan, head of Ireland's central bank, came on the day that Ireland launched its first syndicated bond deal since the bailout, marking another step in the country's efforts to re-secure permanent funding from markets and emerge from its bailout on schedule at the end of this year. But Irish government bonds remain much weaker than eurozone benchmarks, Mr Honohan said in Basel, Switzerland.

He said that the gap in yields between Irish sovereign bonds and benchmark bonds from the region is no longer "bloated" by fears that the eurozone would break up. But he added that for long-term bonds, "they do seem to reflect a credit risk premium that is poor reward, so far, for what has been a sizeable fiscal adjustment effort".

Yields on Ireland's benchmark bond maturing in 2020 now stand 2.85 percentage points above reference German bonds—around the tightest level since August 2010. At its widest point in July 2011, the gap over bunds—considered some of the safest bonds in the world—yawned out to more than 11 percentage points.

The bond was the first such syndicated offer since before the country was forced to strike a bailout deal with the European Union and International Monetary Fund in late 2010 but, more important, built on the country's success last summer when it sold medium-term debt for the first time in almost two years. Ireland was thrown into its worst-ever debt crisis after a property market crash forced the country to pump in huge amounts into its broken banks.

But the Irish government has for some time been seeking to persuade the eurozone authorities to strike a deal to allow it to extend the payment schedule on the approximately €32 billion injected in a promissory note into Anglo Irish Bank Corp and Irish Nationwide Building Society, now defunct lenders, over the past five years.

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