Bailout chaos fails to cheer markets


ETS continued to tumble and peripheral Eurozone gilt yields jumped yesterday as Ireland’s political turmoil added to the uncertainty surrounding its bailout.
The Eurostoxx 50 saw 1.5 per cent wiped off its value, sliding to 2,745 while the Irish ISEQ 20 index lost two per cent to close at 432.
In a sign of contagion fears, the FTSE 100 and Portuguese PSI 20 also dropped, with the PSI losing 1.3 per cent to close at 7,623 and the FTSE losing 0.9 per cent to close at 5,600.

The cost of borrowing for Eurozone economies continued to climb. Irish 10-year gilts saw their yield jump up to 8.4 per cent – close to the nine per cent mark that prompted an escalation in market fears last week.

Portuguese 10-year gilt yields rose over 6.9 per cent and Spanish 10-year note yields topped 4.9 per cent.

The cost of insuring Irish debt also rose again yesterday, with five-year credit default swaps (CDS) on Irish gilts rising 26 basis points to 555bps (a cost of €555,000 to insure €10m of debt). Five-year CDS on Portuguese debt also jumped, by 28bps to 486bps.

And the euro’s movements confirmed the run of bad news for Europe. The single currency dropped from 85.3p to 84p against sterling yesterday and from $1.36 to $1.34 versus the dollar.
The continued slide in stocks reflects fears both that Ireland will not be able to pass the necessary austerity measures and that the bailout won’t solve the country’s underlying insolvency problems.