Irish bond rate converges with France on ‘Frexit’ fears

The market interest rate on the government’s benchmark 10-year bonds converged with those of France for the first time in almost a decade on mounting market nervousness over the upcoming presidential election in the euro zone’s second largest economy.

French and Irish 10-year bond yields met at just over 1 per cent on Tuesday, marking the first time rates had done so since 2007, following a surge on France's borrowing costs as opinion polls have shown far-right presidential candidate Marine Le Pen gaining support in opinion polls ahead of the elections.

Ms Le Pen, who has been riding a wave of anti-immigration sentiment that fuelled the outcome of the Brexit referendum in Britain and Donald Trump coming to power in the US, has questioned France's commitment to the single currency and advocates a referendum on the matter, prompting speculation of a "Frexit".

Ireland’s 10-year bond yields have risen from a euro-era low of 0.3 per cent in September to over 1 per cent, while similar French securities have jumped from 0.1 per cent over the same period. The differential between both rates had been as wide as 11 percentage points in July 2011, when Irish bonds were trading at a yield of more than 14 per cent.

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Spread

The spread between both yields has narrowed sharply over the past 6½ years after the State exited its international bailout and the

European Central Bank

started to buy government bonds two years ago under its quantitative easing programme.

While some commentators may argue that the convergence of Irish and French bond yields marks the government’s final return from being a “peripheral” player in the European bond markets to the “core”, the move is more down to market jitters over France.

France’s investment grade bonds are rated AA by credit ratings agency Standard & Poor’s, two levels above Ireland’s A+ rating.