Irish bonds fall to post-Brexit lows amid global sell-off

The State’s 10-year bonds fell to levels not seen since the days after the UK referendum on EU membership, amid a sell-off in bonds internationally as investors speculate that central bank action to shore up economies around the globe is nearing a peak.

The fall in the Irish benchmark bonds pushed the yield, or market interest rate, on the securities up to 0.656 per cent on Friday – a level not seen since late June – before ending the session at 0.63 per cent. The rate has more than doubled since the end of September.

Better-than-expected US economic growth and euro zone confidence data on Friday, along with news that German inflation is creeping up, have spurred speculation that central banks will pull back on ultra-easy monetary policies.

The probability of a US Federal Reserve rate hike this year climbed five percentage point this week to 73 per cent in the futures market.

"Yields have risen recently on expectations that we are unlikely to see further policy easing in the euro zone or UK, while views that the Fed will raise this year have hardened," said Dara Turnbull, an economist with AIB.

US gross domestic product expanded by 2.9 per cent in the third quarter, compared to analysts' expectations for a 2.5 per cent increase. Meanwhile, economic confidence across the euro zone rose to a 10-month high in October, according to the European Commission.

Rate stimulus

The UK reported a faster-than-expected expansion on Thursday, virtually killing off bets that the Bank of England would lower borrowing costs in the coming year, while Japan’s central bank chief warned that longer-term bond yields may rise.

Still, Central Bank governor Philip Lane and European Central Bank board member Benoit Coeure signalled in separate speeches on Friday that ECB policy-makers wanted to see more evidence of economic improvement before pulling back on the institution's ultra-easy interest rates and a bond-buying progamme, which is currently slated to come to an end in March.

Meanwhile, the National Treasury Management Agency is preparing to hold its final bond auction of the year next Thursday, likely to be capped at a €1 billion debt sale, which would bring full-year issuance to €8.5 billion. Debt agencies in Germany, Spain and France are also preparing to sell debt in the market next week.

Yields on Italian 10-year bonds climbed 0.06 percentage points to 1.61 per cent on Friday, having reached 1.65 per cent during the sessions, the highest since June 24th. Similar-maturity Spanish debt yields increased four basis points to 1.23 per cent.