Irish yields hit 8-year lows as debt sale draws bumper demand

Tue Jan 7, 2014 11:31am EST

Related Topics

* Ireland draws bumper demand for first post-bailout bond

* Irish 10-year yields fall to eight-year lows

* Sale boosts appetite for other lower-rated debt

By Ana Nicolaci da Costa and Marius Zaharia

LONDON, Jan 7 (Reuters) - Ireland's 10-year government bond yields plunged to eight-year lows on Tuesday as the country's first debt sale since it exited an international bailout attracted bumper demand.

Investors bid more than 14 billion euros ($19 billion) for the new 10-year bond sold via syndication, nearly four times the size of the final 3.75 billion euro issue, the country's debt agency said.

Analysts said the deal was final confirmation that investors trusted Ireland to recover unaided from its property market crash, having just come through an 85 billion-euro EU/IMF bailout programme undertaken in 2010.

The deal also boosted demand for lower-rated debt at large, which had already been benefiting this year from improved economic data, particularly from Spain.

"Certainly Ireland has a lot to do with it. It was a blow-out deal," said David Keeble, global head of fixed income strategy at Credit Agricole. "People are picking their trade for the year and deciding that periphery is a good buy because of improved economic data."

Irish 10-year bond yields fell to 3.27 percent, their lowest in eight years, according to Reuters historical data. That brought the premium they offered over German Bunds, the euro zone benchmark, to 137 bps, its lowest since April 2010. The spread over UK gilts fell to 30 bps, the tightest since March 2010.

Other periphery bonds issues followed suit. Ten-year Greek yields fell nearly 40 bps to their lowest since June 2010 at 7.83 percent. Portuguese yields dropped 16 bps to 5.42 percent - the lowest since May 2013.

Ten-year Spanish yields fell more than 10 bps to their lowest since December 2009 at 3.798 percent. Equivalent Italian yields were down 5 bps at 3.88 percent.

Spanish government bonds have had a good run so far this year due to better economic data from the euro zone's fourth- largest economy. Traders said there was also speculation in the market that Spain would undertake a road show next week for a 10-year bond syndicated deal.

"There is very solid domestic buying of Spain and Italy again. I think people are looking for a bit of yield and that's where it is," one trader said.

Some analysts also said the Irish deal offered proof of increased market access and should help support Ireland's credit ratings. Moody's, the only big agency to rate Ireland below investment grade, is due to review its ratings on Jan. 17.

PORTUGAL MAY BENEFIT

Rabobank senior rate strategist Richard McGuire said evidence a euro zone country was able to successfully exit its bailout could raise confidence that Portugal could follow in Ireland's footsteps when its aid deal ends later in 2014.

Portuguese bonds have outperformed other euro zone debt this year. Ten-year yields fell more than half a point to 5.42 percent since the end of 2013 as an improving global growth outlook increased appetite for riskier assets.

"I would expect Portugal to tap the market in coming weeks," DZ Bank strategist Christian Lenk said.

Junk-rated Portugal is due to be reviewed by Moody's this Friday and by Standard& Poor's a week later. Analysts expect the ratings at least to remain stable.

"Ratings are bottoming out," KBC strategist Piet Lammens said. "There is a general idea in the market that the European crisis is almost over."

Top-rated German Bund yields were 2 bps lower at 1.89 percent.

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