Bond markets hit Ireland, Portugal

4th November 2010, Comments 0 comments

Irish and Portuguese borrowing rates on the financial markets soared to historic highs on Thursday as pressure mounted on the two struggling eurozone members to put their public finances in order.

On Wednesday, Portugal's parliament approved a tough austerity budget aimed at slashing the public deficit but the markets were unimpressed.

In early afternoon trade, the yield -- the rate of return for investors -- on the benchmark Portuguese 10-year bond had jumped to 6.436 percent from 6.168 percent.

Ireland's 10-year bond was at 7.516 percent, up sharply from 7.299 percent.

The Irish government was later Thursday to issue a statement on the impact of an austerity initiative, aimed at saving 15 billion euros over four years, on the 2011 budget.

Meanwhile, Spain, another country trying to bring its public finances back within European Union norms, also had to pay investors much more when it borrowed fresh funds on Thursday.

In Madrid, the Treasury said it sold 3.387 billion euros (4.80 billion dollars) in 5-year bonds at a yield of 3.576 percent, up sharply from the previous such offer at 2.964 percent on September 2.

Spain, Portugal and Ireland have all been under intense pressure since debt-strapped Greece was only saved from default in May by a 110-billion-euro rescue package put together by the EU and International Monetary Fund.

Greek 10-year bonds were yielding nearly 11 percent on Thursday.

Dealers said the uncertain economic outlook for these weaker eurozone countries was making investors nervous about buying their debt.

"Investors are getting very jittery as more bad news comes through. Many of the governments in these weaker countries are under pressure and the political situation is fragile. The market does not like that," said Rene Defossez of Natixis in Paris.

The eurozone bond market of late has been working under unusual conditions because the ECB since May has been buying government bonds from banks as a means of shoring up their finances.

© 2010 AFP

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