Ireland, Greece, Spain sail through bond auctions

21st September 2010, Comments 0 comments

Ireland, Greece and Spain sailed through crucial debt tests with successful bond issues on Tuesday, cooling concern that the eurozone is slipping into a new financial danger area.

"The peripheral governments pulled another cat out of the bag," said currency analyst Jane Foley at Rabobank.

Ireland revealed that it had raised 1.5 billion euros (1.96 billion dollars) as planned, in an oversubscribed bond auction seen as a crucial test of investor confidence in the deeply strained Irish economy.

At the same time, Greece said it raised 390 million euros or more than planned, while Spain raised 7.04 billion euros ahead of a separate bond sale in neighbouring Portugal on Wednesday.

Investors remain uneasy over the eurozone debt and deficit crisis, which is centred on the poor state of public finances in Portugal, Ireland, Italy, Greece and Spain -- widely known as the PIIGS nations.

Ireland was under particular scrutiny because of concern that the dire state of public finances, overloaded by the cost of rescuing banks, might force it to seek help from a huge EU crisis fund set up after the Greek crisis four months ago.

Foley said: "The Greek and Irish debt sales in particular will have eased simmering tensions in the eurozone debt markets and pushed back risk of default further.

"Investors, it seems, have been overwhelmed by the attraction of high yields in a market otherwise dominated by low returns."

Ireland's government public debt agency said it had placed bonds worth 500 million euros due in 2014, with demand 5.1 times greater than the amount offered.

The bonds carried a yield of 4.767 percent, up from 3.627 percent at a similar previous operation.

Ireland also placed eight-year bonds worth 1.0 billion euros, 2.9 times oversubscribed, at a rate of 6.023 percent, which compared with 5.088 percent at a previous issue.

Greece meanwhile raised 390 million euros via a three-month debt issue at a rate of 3.975 percent, with demand six times greater than the amount on offer.

The Greek debt office had intended to raise 300 million euros but increased the amount after it was deluged with demand.

Athens was frozen out of the sovereign debt market four months ago when a debt crisis brought it close to default but it was then rescued with huge loans from the European Union and International Monetary Fund.

Since then, Greece has been dipping its toe back into the water and is now stepping up the rate of issuance.

The Irish came amid speculation that Ireland may have to appeal to the EU-IMF rescue scheme.

But the European Financial Stability Facility, set up to aid debt-laden eurozone countries, does not think Ireland or Portugal will ask for help, EFSF head Klaus Regling said on Tuesday in an interview.

Neil MacKinnon, analyst at financial services group VTB Capital, said that the auctions had passed without any nasty surprises -- but warned that stubborn debt concerns would not go away.

"The Irish, Greek and Spanish bond auctions did not cause any disruptions this morning -- but the European Central Bank is probably in the background attempting to ensure some degree of stability," MacKinnon noted.

"However, investor concerns over the longer-term outcome to the eurozone debt and banking crisis will likely persist."

The eurozone sovereign bond market is distorted because the ECB, in a big switch of policy after the Greek crisis, agreed to stand by as a buyer of last resort of government debt bonds held by institutions needing cash. It has also extended special arrangements for making money available to banks in difficulty.

In reaction to the news of the bond issues, the European single currency bounced up against the dollar in trading in London, and European stock markets also firmed.

In Dublin, investors remained on edge over the impact of banking sector bailouts following the state rescue of Anglo Irish Bank.

"For the Irish government, today's sale will have calmed frayed nerves, but the government still needs to respond to accusations that there is a lack of clarity about the costs of the Anglo Irish bailout," said analyst Foley.

Anglo Irish reported a pre-tax loss of 8.2 billion euros in the six months to June, on top of 12.7 billion euros for the whole of 2009, the biggest-ever losses in Irish corporate history.


© 2010 AFP

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