THE MARKETS:THE VALUE of Irish government debt fell in a day of feverish speculation on the financial markets ahead of last night's meeting of the euro group of finance ministers. The yield or interest rate on benchmark 10-year Irish bonds, which has an inverse relationship to bond prices, rose to 8.2 per cent, having fallen to close to 8 per cent on Monday.
Uncertainty about whether Ireland would tap the EU rescue fund dominated international market commentary.
Speculation that a bailout was imminent prevailed early on in the day after European Council president Herman Van Rompuy warned that the future of the euro zone was at stake.
“We are in a survival crisis,” he said. “We all have to work together in order to survive with the euro zone because if we don’t survive with the euro zone, we will not survive with the European Union.”
This view appeared to be dispelled a few hours later by EU commissioner Olli Rehn who cautioned against alarm. “It’s not a matter of the survival of the euro,” he said.
Despite the Government’s repeated claims to the contrary, the consensus among commentators and market analysts internationally was that some sort of bailout was imminent.
“Essentially, the market is looking for some sort of financial assistance,” Grant Lewis, head of economic research at London-based Daiwa Capital Markets said yesterday evening, pointing out that market fluctuations that occurred yesterday in response to contradictory reports illustrated the sensitivity of the market to the Irish debt issue.
“It is difficult to square Brian Cowen’s comments about reassuring markets with not having some sort of bailout,” he said.
In the Dáil yesterday evening, Taoiseach Brian Cowen criticised what he called “ill-informed and inaccurate” speculation about the Government seeking a bailout and reiterated that Ireland had made no application for external support, although he confirmed that there had been contact with officials.
“Given the current market conditions, there have been ongoing contacts at official level with our international partners,” he said.
“The Department of Finance is continuously in contact with these bodies. The engagement has been particularly intense in the run-up to the budget and the four-year plan.”
Mr Cowen’s comments came as Minister for Finance Brian Lenihan arrived in Brussels for talks with his 15 euro zone counterparts.
The sell-off in euro-zone bonds continued to be accompanied by a sell-off in the euro yesterday, as the euro remained under pressure amid concern that the Irish debt crisis would spill into other euro-zone countries.
The euro weakened against the dollar and the yen yesterday, although it strengthened slightly against sterling.
The dollar rose to a seven-week high against the euro, appreciating 0.8 per cent to $1.3483 a euro by yesterday evening.
Meanwhile, Spain sold €5 billion worth of bills yesterday in a scheduled monthly auction, less than the maximum target of €5.5 billion. Concerns have been raised in recent days about the implications of the Irish crisis on Spain, one of Europe’s largest economies.
The country sold €3.73 billion of 12-month bills at an average yield of 2.363 per cent, compared with 1.842 per cent when the securities were last sold on October 19th. It also sold €1.24 billion of 18-month bonds at 2.664 per cent, compared to the yield of 2.009 per cent last month.
