IRELAND CAN “easily” weather the impact of the Greek crisis on financial markets, the chief executive of the National Treasury Management Agency has said.
John Corrigan said he “wouldn’t be unduly worried” about the rise in Irish bond yields in recent days.
“The movement in Irish bonds clearly has been a little bit disappointing, but it’s part of the general movement caused by the Greek problems,” Mr Corrigan said.
Irish, Portuguese, Spanish bond yields jumped in the past week as investors questioned the countries’ ability to reduce budget deficits and avoid the fate of Greece, which last week triggered an aid package from European governments and the International Monetary Fund (IMF).
Irish two-year bonds fell for an eighth day yesterday, pushing yields to the highest in a year.
Ireland has “very substantial” cash balances and could “weather the storm” if there was more turbulence, Mr Corrigan said. The agency has the scope to vary the amount of bonds offered in monthly auctions, he said.
“At this point of time we have a total borrowing of about €20 billion for this year. We’re very comfortably circumstanced.”
Analysts agreed with Mr Corrigan’s assessment, with Davy Research economist Rossa White describing the risk of contagion from Greece to Ireland as “overblown”.
Irish two-year bond yields have spiked over the past week despite the fact that Ireland has no major refinancing obligations this year and a €23 billion cash balance.
Sovereign risks in Ireland have also been reduced as a result of Bank of Ireland’s ability to attract private investment to boost its reserves, Mr White noted.
The bank’s mix of private and State sources of funding in its recapitalisation “may ultimately let the Irish State off the hook for about €1.7 billion versus the worst-case scenario”.
However, Mr White said it would be “helpful” in the context of “scary” bond markets if the Government revealed soon how it intended to achieve its fiscal consolidation plans for 2011.
“A funding crisis this year is an unlikely possibility in relation to Ireland,” Goodbody Stockbrokers economic analyst Deirdre Ryan wrote in a note to investors.
She added that the attention placed on Irish spreads was “unfortunate” given the plaudits Ireland had received for the tough measures taken in tackling the fiscal deficit.
Irish 10-year bonds fell yesterday. The premium investors charge to hold the State’s 10-year debt over the German bund, Europe’s benchmark government bond, widened 33 basis points to 220 basis points (2.2 percentage points).
Portugal’s spread over Germany widened to more than 260 basis points yesterday, while Greece was at 680 basis points. – (Additional reporting: Bloomberg)
