Irish sovereign debt interest rate spreads


When the Euro was formed, bond traders looked askance at Southern European sovereign debt, which trade at a considerable premium to debt from Germany, France and the Netherlands. In those days, the Southern European countries developed the offensive nickname PIGS (for Portgual, Italy, Greece, and Spain). But after EMU, those bonds converged to yield nearly the same as the Germans.

Convergence is over and divergence seems to be the new trend, but this time Ireland has replaced Italy as one of the PIGS. Their bonds are traded at heavy discounts according to the Irish Independent:

Irish Government bonds have widened considerably in recent days amid growing speculation the State may have to invest, or underwrite an equity raising, in the country’s lenders.

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Ireland’s 10-year bonds have moved from 4.48pc to 4.66pc within the past week, compared to 3.77pc for the German equivalent. They have become more expensive than the 4.64pc yields of Portugal, though remain below those of Italy (4.97pc) and Greece (5.33pc).
Irish Independent

Needless to say this is the kind of statistic that has Eurosceptics like Ambrose Evans-Pritchard foaming at the mouth and plotting the demise of the Euro.

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