Ireland, Greece, Spain pass crucial bond auctions
Ireland, Greece and Spain enjoyed successful bond issues yesterday, dampening concern that the eurozone is slipping into a new financial danger zone.
Ireland revealed that it had raised €1.5 billion as planned, in an oversubscribed bond auction that was seen as a vote of investor confidence in the troubled Irish economy.
At the same time, Greece said it raised €390 million or more than planned, while Spain raised a huge €7.04 billion ahead of a separate bond sale in neighbouring Portugal today.
Investors remain uneasy over the eurozone debt and deficit crisis, which is centred on the perilious state of public finances in Portugal, Ireland, Italy, Greece and Spain – widely known as the PIIGS nations.
“The Greek and Irish debt sales in particular will have eased simmering tensions in the eurozone debt markets and pushed back risk of default further,” said currency analyst Jane Foley at Rabobank.
“Investors, it seems, have been overwhelmed by the attraction of high yields in a market otherwise dominated by low returns.”
Ireland was under close scrutiny amid concern that the dire state of public finances, overloaded by the cost of rescuing banks, might force it to seek help from a huge European Union-International Monetary Fund mechanism set up after the Greek debt crisis four months ago.
“The successful bond auction from Ireland shows that the country can still fund itself and does not yet have to tap the IMF for funds as rumoured last week,” added analyst Eric Voloria at online trading site Forex.com.
Ireland’s government public debt agency said it had placed bonds worth €500 million due in 2014, with demand 5.1 times greater than the amount offered.
The bonds carried a yield of 4.767 per cent, up from 3.627 per cent at a similar previous operation.
Ireland also placed eight-year bonds worth €1.0 billion, 2.9 times oversubscribed, at a rate of 6.023 per cent, which compared with 5.088 per cent at a previous issue.
Greece, meanwhile, raised €390 million via a three-month debt issue at a rate of 3.975 per cent, with demand six times greater than the amount on offer.
Athens was frozen out of the sovereign bond market four months ago when a debt crisis brought it close to default but it was then rescued with huge loans from the European Union and International Monetary Fund.
Since then, Greece has been dipping its toe back into the water and is now stepping up the rate of issuance.
The Irish bond auction came amid speculation that Ireland may have to appeal to the EU-IMF rescue scheme.
But the European Financial Stability Facility, set up to aid debt-laden eurozone countries, does not think Ireland or Portugal will ask for help, EFSF head Klaus Regling said yesterday in an interview.
However, Neil MacKinnon, analyst at financial services group VTB Capital, warned that stubborn debt concerns would not go away.
“Today’s bond auctions do nothing to dispel investor worries about more fundamental concerns over unsustainable debt dynamics in the eurozone, as well as concerns over bank sector funding difficulties,” he said.
The eurozone sovereign bond market is distorted because the ECB, in a big switch of policy after the Greek crisis, agreed to stand by as a buyer of last resort of government debt bonds held by institutions needing cash. It has also extended special arrangements for making money available to banks in difficulty.
In reaction to news of the bond issues, the euro bounced against the dollar in London trade, while European stock markets also firmed.
In Dublin, investors remained on edge over the impact of banking sector bailouts following the state rescue of Anglo Irish Bank.
“For the Irish government, today’s sale will have calmed frayed nerves, but the government still needs to respond to accusations that there is a lack of clarity about the costs of the Anglo Irish bailout,” said Ms Foley at Rabobank.
Anglo Irish reported a pre-tax loss of €8.2 billion in the six months to June, on top of €12.7 billion for the whole of 2009, the biggest-ever losses in Irish corporate history.