LONDON May 12 Irish yields dipped back towards
record lows on Monday, holding beneath equivalent UK government
bonds, and poised for further impetus from an expected ratings
upgrade from Moody's this week.
Having dropped beneath UK Gilt yields for the first time in
six years last week, Irish yields are now on course to drop
below those of U.S. Treasuries.
"At some point, European and U.S. rates will sharply
decouple, and we would expect Irish bonds to trade well through
U.S. Treasuries," said Marco Brancolini, a rates analyst at RBS,
which is predicting a one-notch upgrade for Ireland on Friday.
Irish 10-year yields opened 2 basis points lower
at 2.66 percent. Equivalent UK and US
bonds were quoted at 2.71 percent and 2.63 percent,
The trend of ratings upgrades in the periphery was again
confirmed on Friday, when first Standard & Poor's lifted
Portugal's credit outlook to stable from negative, and then
Moody's upgraded it by one notch.
This provided fresh momentum to a peripheral rally that had
seen Italian, Spanish and Irish yields hit record lows, and few
expect any reversal of these gains with the European Central
Bank ready to deliver fresh monetary stimulus next month.
"We could go much further through (current levels) given the
right set of circumstances," said Padhraic Garvey, head of
investment-grade strategy at ING.
"There is a belief now that the ECB is going to take further
Scheduled releases of euro zone economic output and consumer
prices on Thursday will be closely watched to see if they make
ECB action more likely, while low levels of liquidity in the
euro zone banking sector are also exacerbating money market
Any escalation in unrest in Ukraine after anti-Kiev rebels
declared victory in a referendum on self-rule could also lessen
investors' overall risk appetite this week.
However, traders say that Spanish and Italian
bonds, once at the centre of fears of euro collapse,
are now proving resilient to geopolitical shocks. Both held just
above record lows on Monday, as did safe haven German Bunds.
In primary markets, Spain hired a group of banks to manage
the sale of its first ever bond linked to euro zone inflation.
The deal will be launched in the near future, subject to market
(Editing by Kevin Liffey)