THE COST of insurance against defaults on Irish debt surged to a record high yesterday on growing worries over the cost of Anglo Irish Bank and the health of the wider economy.
The jump in credit default swaps came as the National Treasury Management Agency (NTMA), which manages the State’s debt, raised €400 million by selling short-term bonds.
EU economics commissioner Olli Rehn also said yesterday the Government must “substantiate” its commitments to restore order to the public finances by 2014.
In a speech in Berlin yesterday, the commissioner made a specific reference to Ireland in the context of efforts by the European authorities to safeguard financial stability in the euro area.
“In this sense, I trust that countries such as Ireland or Portugal will continue to tackle with determination their respective financial and fiscal challenges,” Mr Rehn said.
The European Commission and the council of EU governments were working in “close co-operation” with the governments of both countries to achieve this.
“Ireland, in particular, needs to complete its financial and bank resolution, and substantiate consequently its commitment to bring the public finances on a sustainable path by 2014.”
Contracts to insure against Irish debt jumped by 39.5 basis points to 503.5 basis points early yesterday, according to data provider CMA. Swaps on Anglo Irish subordinated debt now cost €5 million in advance and €500,000 per year to insure €10 million in debt for five years.
The Government’s guarantees on some of the banks’ subordinated debt come to an end next week, while a final estimate on the cost of bailing out Anglo Irish Bank is expected shortly.
The spread between interest rates on benchmark German 10-year debt and the Irish equivalent grew, meanwhile, reaching a record 417 points. The widening came in advance of a speech last night by Gerry Keenan, chairman of the Irish Association of Investment Managers, who hit out at “mounting hysteria” over Irish economic problems.
The NTMA had indicated that it would raise between €300 million and €500 million in short-term debt yesterday. Demand at the auction was healthy but less robust than at a comparable sale early in the month.
A spokesman for the NTMA said the agency “could have sold €500 million but decided to sell less because we have already accumulated substantial cash balances”.
The agency sold €300 million in bills maturing in February 2011 at an interest rate of 1.907 per cent, slightly below the equivalent rate on September 9th.
A further €100 million was raised in debt maturing next April, at a rate of 2.231 per cent, which compared to 2.19 per cent two weeks ago.
Total demand for the debt amounted to €2.4 billion, although no detail on the rates at which most interest was recorded was provided. The 6½-month debt attracted 4.1 times demand, while the 4½-month bills were covered 11.7 times.
AIB chief bond economist Oliver Mangan described yesterday’s auction as “small beer” in the context of the NTMA’s sale of €1.5 billion in four- and eight-year debt earlier this week.
He said it was unsurprising the agency had decided not to sell the maximum set for the sale yesterday given the State’s funding needs were well covered until the middle of next year. – (Additional reporting, Bloomberg)
