EU pledge galvanises bonds market

EURO ZONE BONDS and stocks took heart from news of a deal to save Greece’s finances yesterday, but the euro chose to hold its breath until more details of the package emerge.

The bond markets were particularly fond of the EU’s pledge to solve the Greek problem, with Irish spreads – the difference between the yield on Irish State debt and German debt – narrowing by 30 basis points.

Donal O’Mahony, global strategist with Davy, said the “formal comfort blanket” of the EU announcement of support was always going to “galvanise” the bond markets.

Irish 10-year spreads have reverted back to between 135 and 140 basis points following yesterday’s movement. “All the widening was forced on us by the Grecian crisis,” said Mr O’Mahony.

He acknowledged, however, that the EU leaders’ statement on a Greece aid deal amounted to little beyond “bland assurances about solidarity”, the meat of which would not emerge until a meeting of European finance ministers early next week. This lack of detail weighed on the euro, which lost ground against both sterling and the dollar yesterday.

“It’s a statement of intent without specifics,” said Liam Connolly, head of the corporate sales desk at Bank of Ireland Global Markets. “From the currency perspective, the market has probably reverted back to where it was last week or earlier this week. The market will have to focus on the finer detail.”

The euro fell by about 0.4 per cent against the dollar, settling at about $1.3685. Sterling, meanwhile, had its biggest gain against the euro since the end of last year, reaching 87.11p.

“We’ve got a statement of intent without any detail of how that will work,” said Mr Connolly, adding that next week’s meeting will need to eliminate concerns about “periphery” countries if the euro is to be supported.

Equity markets were strong across Europe, although the uncertainty around the EU’s pronouncements punished the banks. Stronger commodity stocks helped to save the day around the continent, but the Iseq failed to pull itself into the black by the end of the session.

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John Corrigan, chief executive of the National Treasury Management Agency, told reporters yesterday the Republic had “set the headline” in the way it had dealt with its deficit.

“We were in a bad place in March 2009. We had difficulty in accessing new paper beyond a five-year maturity. Since then the Government has set the headline in European terms and we reap the benefit of that.” He would be “hopeful” bond spreads would “narrow in”. In relation to Greece, “anything that relieves the pressure in the market, just looking at it from a capital markets perspective, has to be welcome”.

Mr Corrigan was speaking after addressing the Public Accounts Committee in Dublin.

(Additional reporting, Bloomberg)