Volatility predicted for Irish bonds

The market interest rates on Irish government bonds are set to become more volatile over the next two months as the UK prepares to vote on whether to exit the EU, according a primary dealer in the nation’s bonds.

While Irish bond yields spiked the day after UK prime minister David Cameron announced in February that a referendum on the matter, known as Brexit, would be held in June, they quickly recovered as the market calmed down.

"Despite the avalanche of media coverage and market commentary we argue that investors remain relatively relaxed regarding Brexit risk and have not fully discounted a potential'' UK exit of the EU, said Ryan McGrath and Fiona Hayes, analysts with Cantor Fitzgerald in Dublin, a primary dealer in Irish bonds.

Political risk

However, mounting uncertainty over how the vote will go on June 23th, coupled with Irish political risk as the country remains without a government after February’s general election, will increase pressure on Irish bond yields, they said in a report published yesterday.

Cantor Fitzgerald sees differences in borrowing costs between core European economies, like Germany, and more peripheral markets such Ireland, Spain and Italy widening as investors pile into safe havens.

Of comfort to the National Treasury Management Agency, however, is the fact that it has already completed €4.5 billion of its targeted bond sales this year of between €6-10 billion.

The yield on Ireland’s benchmark 10-year bonds has risen to 0.86 per cent from 0.71 per cent at the start of this month. It remains well off a record high of over 14 per cent in July 2011.