The Rise in Irish Bond Yield Eases

20 July 2011 - Which Way to Pay

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The Rise in Irish Bond Yield Eases

The decrease in the cost of borrowing on Irish bonds has eased pressure across weaker European borrowers today. This news gives hope that the seemingly relentless rise in government bond yield will come to an end as markets are seen to improve across Europe. Despite still being elevated, there is promise in the fact that 10-year bonds decreased from 13.8pc to 13.38 yesterday. Furthering this, the 2-year yield went from greater than 23pc to 21.49pc.

European markets are generally better as a result of strong company results; notably drug maker Novartis and IT giant IBM. Similarly, the euro rose yesterday after starting the week poorly with the record low against the Swiss franc (see currency charts).

However, this more positive economic outlook doesn’t look set to last according to RBS who commented last night that the debt crisis in Europe could get worse. A senior bond strategist for the bank of London, Harvinder Sian, is similarly pessimistic saying a “large systemic risk event” could occur within weeks. Sian warned investors off buying any European bonds (except Germany) although he anticipates a deal to pull back from the edge. In an investor report Sian commented;

”The conditions for a near-death experience for the euro are in place now, which in turn should finally galvanise a more serious policy reaction." Despite the markets improvement showing economic progression can occur in the shadow of debt, the price of gold fell back from Monday's all-time high. Although prices of gold are still close to the high, the price changes confirm that gold is no longer the traditional safe haven in volatile markets.

Until European leaders sit down tomorrow, it seems yesterday's improved markets are more like a pause than a rally.

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