Irish bonds shunned as woes mount

 
Marion Dakers
IRELAND’S borrowing costs soared to an 11-year high yesterday on worries the country is on the brink of asking for a Greek-style bailout from the EU or the International Monetary Fund (IMF).

The Irish central bank governor also admitted yesterday that the enormous bank rescue had failed to reassure investors and that struggling Irish institutions might be better off in foreign hands.

Growing alarm at Ireland’s potential bankruptcy sent benchmark 10-year yields up by more than half a percentage point to 8.64 per cent, the highest level since 1999, while the country’s spread over benchmark German bonds soared to 6.22 percentage points, which represents an all-time high.

European clearing house LCH.Clearnet made it more expensive to trade Irish debt due to the threat of sovereign default, hiking the margin required by 15 per cent of net exposure.

The EU’s top monetary official Olli Rehn has said that while Ireland had not requested any financial aid, the premium investors are demanding to hold Irish bonds rather than German benchmarks has widened at the same breakneck speed as Greece’s spread did shortly before it sought its bailout in May.

Irish central bank governor Patrick Honohan conceded in a speech yesterday “investors are not yet fully convinced” that setting up the National Asset Management Agency to buy out troubled assets from banks including Allied Irish and Bank of Ireland had helped build confidence in the country’s finances.

“From a national point of view, the entry of foreign purchasers for some or all of the banks would help transfer both credit and liquidity risk to those in a better position to bear them,” he told the International Financial Services Summit in Dublin.

He said the central bank would help search for potential buyers, “as it is clear that all will benefit from greater market confidence in the financial situation of the banks as in the sovereign”.

The Irish government hopes to pass an emergency budget to save €6bn (£5.13bn) in December, which has already led to public protests.

However, Honohan said yesterday the country will not alter its austerity plans even if the country requires a bailout. “My take would be the sort of policy package the IMF would want to see Ireland doing is very much the sort of policy package that the government is putting together on the fiscal side,” Honohan told the conference yesterday.