Yields on Irish and Portuguese bonds jump after bailout plans

BORROWING costs for Dublin and Lisbon jumped yesterday after investors were spooked by EU plans to force bondholders to share in the pain in the event of another sovereign debt crisis.

Last week, EU leaders signed up to German chancellor Angela Merkel’s plan to deal with any repeat of Greece’s debt crisis, which stipulates that bondholders must share in any losses.

At the time, Jean Claude-Trichet, president of the European Central Bank, warned that the proposed system would see borrowing costs jump, as creditors passed on the added risk to borrowers.

Yesterday’s movements in the bond markets suggest he was right. Ireland saw the premium it pays over German bunds rise to 4.67 per cent, while the yield on its 10-year bonds reached 7.14 per cent, a rise of 0.22 points. Portugal saw its yield rise 0.16 per cent to 6.11 per cent, while borrowing costs for Greece and Spain also ticked up.

However, credit rating agency Moody’s said Portugal, Greece and Ireland were likely to avoid sovereign bond defaults thanks to strong demand from local investors.