LSE.co.uk
HomeShare PricesShare ChatFinance NewsSharecast NewsRegulatory NewsBlogsLive PricesShares BookshopFinance ToolsMembers
Latest Share Chat
Finance & Stock Market News
CORRECTED-UPDATE 1-Irish CDS up on budget, bond yield spread stable
Tue, 7th Apr 2009 20:36
By George Matlock and Jamie McGeever
LONDON, April 7 (Reuters) - Investors paid more on Tuesday to insure against the Irish government defaulting on its debt after the country unveiled its second emergency budget in six months to try to fix the worst public finances in Europe.
Finance Minister Brian Lenihan presented a medium term strategy, including a raft of spending cuts and some proposals to raise revenue to plug the fiscal holes, and said the economy could shrink by as much as 8 percent this year.
Ratings agencies Moody's and Standard & Poor's were unavailable for immediate comment. S&P downgraded Ireland's sovereign creditworthiness last week from the prized AAA ranking but Moody's still rates it Aaa although it has warned that the outlook is negative.
Although credit default swaps (CDS) on Irish government debt rose after the budget proposals, the premium investors demanded for holding Irish government debt over benchmark German sovereign bonds held steady.
'We would have seen a positive move on Irish bonds, spread tightening, if we'd had more moves on tax hikes rather than spending cuts,' said Peter Chatwell, rates strategist at Calyon in London.
'The nastiness of some of these numbers is offset by the scope of Lenihan's actions, albeit through the less favourable option of cutting spending rather than raising taxes,' he added.
The five-year Irish sovereign CDS rose to 224.3 basis points from 211.1 bps before Lenihan started speaking, according to monitor CMA DataVision, meaning it costs investors 224,300 euros to protect 10 million euros-worth of Irish government bonds.
But the CDS was still lower than the record 400 bps it marked in February.
The CDS prices suggest the risk of Ireland defaulting within five years climbed to 18.1 percent from 17.1 percent earlier in the day, CMA said.
The 10-year Irish/Bund yield spread remained broadly steady, remaining in a tight range of 205-207 basis points most of Tuesday afternoon, Reuters charts showed.
Analysts said a lot of the bleak economic and fiscal news on Ireland has already been priced into its government bonds, with the yield spread over Bunds significantly already wider than most other euro zone nations', with the exception of Greece's.
That, coupled with thin liquidity at the end of the day, may be why markets were unmoved by some of the large numbers Lenihan unveiled.
'Combined with what has been implemented already for 2009 in the October budget and in February it's probably as much as the economy can bear this year,' said Oliver Mangan, chief bond economist at AIG Global Treasury in
Dublin.
'It's on the order of 5 percent of GNP as a fiscal contraction (combined). It's a hell of a fiscal contraction.'
(Reporting by George Matlock and Jamie McGeever; Editing by Ruth Pitchford) Keywords: MARKETS IRELAND
(george.matlock@reuters.com; Reuters Messaging: george.matlock.reuters.com@reuters.net; +44 20 7542 2508)
COPYRIGHT
Copyright Thomson Reuters 2009. All rights reserved.
The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
LONDON, April 7 (Reuters) - Investors paid more on Tuesday to insure against the Irish government defaulting on its debt after the country unveiled its second emergency budget in six months to try to fix the worst public finances in Europe.
Finance Minister Brian Lenihan presented a medium term strategy, including a raft of spending cuts and some proposals to raise revenue to plug the fiscal holes, and said the economy could shrink by as much as 8 percent this year.
Ratings agencies Moody's and Standard & Poor's were unavailable for immediate comment. S&P downgraded Ireland's sovereign creditworthiness last week from the prized AAA ranking but Moody's still rates it Aaa although it has warned that the outlook is negative.
Although credit default swaps (CDS) on Irish government debt rose after the budget proposals, the premium investors demanded for holding Irish government debt over benchmark German sovereign bonds held steady.
'We would have seen a positive move on Irish bonds, spread tightening, if we'd had more moves on tax hikes rather than spending cuts,' said Peter Chatwell, rates strategist at Calyon in London.
'The nastiness of some of these numbers is offset by the scope of Lenihan's actions, albeit through the less favourable option of cutting spending rather than raising taxes,' he added.
The five-year Irish sovereign CDS rose to 224.3 basis points from 211.1 bps before Lenihan started speaking, according to monitor CMA DataVision, meaning it costs investors 224,300 euros to protect 10 million euros-worth of Irish government bonds.
But the CDS was still lower than the record 400 bps it marked in February.
The CDS prices suggest the risk of Ireland defaulting within five years climbed to 18.1 percent from 17.1 percent earlier in the day, CMA said.
The 10-year Irish/Bund yield spread remained broadly steady, remaining in a tight range of 205-207 basis points most of Tuesday afternoon, Reuters charts showed.
Analysts said a lot of the bleak economic and fiscal news on Ireland has already been priced into its government bonds, with the yield spread over Bunds significantly already wider than most other euro zone nations', with the exception of Greece's.
That, coupled with thin liquidity at the end of the day, may be why markets were unmoved by some of the large numbers Lenihan unveiled.
'Combined with what has been implemented already for 2009 in the October budget and in February it's probably as much as the economy can bear this year,' said Oliver Mangan, chief bond economist at AIG Global Treasury in
'It's on the order of 5 percent of GNP as a fiscal contraction (combined). It's a hell of a fiscal contraction.'
(Reporting by George Matlock and Jamie McGeever; Editing by Ruth Pitchford) Keywords: MARKETS IRELAND
(george.matlock@reuters.com; Reuters Messaging: george.matlock.reuters.com@reuters.net; +44 20 7542 2508)
COPYRIGHT
Copyright Thomson Reuters 2009. All rights reserved.
The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
