The Greek cost of debt has just risen quarter of a point: Greece will repay the markets €300m over six months at 4.82 per cent, up from 4.54 per cent at the last auction in October. The rise takes the Greek cost of debt back up to highs in 2008 (see red spots on chart).

Greece is testing the market, auctioning short-term debt roughly monthly instead of quarterly (see blue bars on chart). Six month and three month bills are still being regularly offered, but there have been no 1, 5 or 10-year bonds since April and no other maturities for even longer.

The timing of Greek debt auctions has been pretty good, to date, raising funds in periods of relative market calm. The secondary market has been wild at times – above 10 per cent – but the maximum agreed yield at auction was a trifling 5.09 per cent in 2008.

This may lend hope to IrelandRead more

If the Irish government wanted to issue new ten-year debt this instant, they would have to agree to repay at about 7.8 per cent, a record and a very sharp increase on several preceding sharp increases. And this in spite of bond purchases by the ECB.

If investors wanted to insure themselves against the possibility of default on €10m five-year Irish bonds, they would have to pay €608,000. That’s higher than the cost of insuring against Argentinian default, apparentlyRead more

It looks likely the ECB has been buying Irish bonds this week as bond prices have tumbled in peripheral eurozone countries; Business Week quotes three traders confirming the central bank intervention at 2019 and 2025 maturities.

The premium investors charge to hold 10-year Irish bonds over their German equivalents – the yield spread – has risen above 500bp this morning, and credit-default spreads rose to 5.3 percentage points, a record according to Markit.

Greece’s cost of debt is also rising, not helped by the deputy PM reportedly saying: “Debts exist to be restructured.” Indeed many think the fear of debt restructure – aggravated by recent discussions of the eurozone bail-out fund, the EFSF – is what’s driving the markets, rather than fundamental deterioration in the domestic situation. Gary Jenkins, head of Fixed Income at Evolution Securities, said: Read more

As the BoJ and ECB report easing credit standards, the Bank of Ireland has just proposed a new consumer code that includes stricter tests for mortgages and consumer credit. New provisions for housing loans include a 2 per cent stress test on the bank’s standard rate and stricter rules on what will and won’t count as proof of income. Self-certified declarations of income, for instance, would be out.

Another significant suggestion in the mortgage market applies to brokers. Mortgage intermediaries are not currently covered by rules that bind insurance brokers, for instance, to disclose the commission they receive on certain products. The new code would extend this requirement to them. Read more

Ralph Atkins

With not much to decide at Thursday’s meeting - its strategy remained unchanged in spite of talk of further “quantitative easing” in the US and UK - the European Central Bank’s governing council embarked on what Jean-Claude Trichet, ECB president, described as a “literary exercise” to trim back the introductory statement he reads at each monthly press conference. I am not sure the results were entirely successful.

Vítor Constâncio, the vice-president, sitting next to Mr Trichet, looked pained when I described some of the new language as rather tortured. But I stand by my case. Read more

Determined to stay ahead of the competition, Fitch has cut Ireland’s sovereign debt rating one notch to A+, outlook negative. The three main agencies had almost all settled upon Fitch’s previous rating of AA-, with S&P’s recent cut removing its one notch difference, and Moody’s recent cut and downgrade review looking likely to cut its two notch difference. But Fitch has taken the next step, following the “greater than expected fiscal cost” of the Irish government’s bank recapitalisation plan.

Before you place too much emphasis on this, however, you might want to read a new paper from NBER. Research has found that increased competition among ratings agencies has led to lower quality corporate ratings. In one test, speculative grade firms were 7.7 times as likely to default within three years as investment grade firms when competition was low (i.e. Fitch market share is at the 25th percentile), but only 2.2 times as likely when competition was high (market share at the 75th percentile). Read more

Government bonds bought last week by the European Central Bank totalled €1,384m, a tenfold increase on last week’s €134m purchase.

As Ralph and David will shortly report on, purchases of Irish bonds were largely behind the increase, according to traders:

Ireland’s escalating banking crisis forced the ECB to ramp-up significantly its government bond buying programme last week, when purchases hit almost €1.4bn. Some of the ECB purchases reported on Monday may have been deals struck in the previous week but only settled last week.

 Read more

Anglo’s failure would “bring down” Ireland, its Finance Minister said Wednesday. But the bail-out’s dependence on Ireland’s pension fund might do much the same thing, argues Ashby Monk.

Ireland is lucky to have a sovereign wealth fund, he points out; the bail-out would have been a great deal more painful without it. But the intergenerational “piggy bank” was meant to be left untouched till 2025. Read more

Falling Portuguese and Irish bond prices of late will have been hurting whoever is holding them. But who?

If the stress test result data is anything to go by, German banks are the most exposed of Europe’s larger banks. Caution is required here, as the stress test sample excluded medium and small banks, plus this is trading book data and positions will have changed. Caveats in mind, nine of the 14 German banks to be stress tested had exposure to Irish and Portuguese sovereign debt, totalling €4.1bn.

WestLB, Espirito Santo, Santander and RBS were easily the most exposed to the sovereign debt of both countries combined; each had more than €1bn in exposure, mostly for Portugal. Caixa Geral, Credit Agricole, HSBC and SocGen each had more than $750m.

These data should be seen in context: Read more

The premiums investors demand to hold Irish or Portuguese bonds instead of German have now passed the levels that precipitated the Greek bail-out.

Bond spreads reached 453bp for Ireland and 441bp for Portugal in trading today – higher than Greek bond spreads were in late April, just before they headed toward 800bpRead more

Ireland has successfully raised €1.5bn on the markets – but at a price. €1bn 2018 bonds sold at an average yield of 6.023 per cent, nearly a 1 percentage point premium over their last offering in June.

€500m of 2014 bonds were also sold at 4.767 per cent, 1.1pp more than a similar offering in AugustRead more

All eyes on tomorrow’s €1.5bn Irish bond offering. As investors have become more nervous, the head of the central bank has called on the government to rethink some of its austerity plans:

“I think these kinds of budgetary programmes do need to be reprogrammed in the light of circumstances,” Patrick Honohan told an audience today at a regulatory conference in Dublin. Read more

It hasn’t been a good day for Ireland. First, they get told off by the ECB for not submitting their opinion request in a timely manner. Then BarCap issues a report saying the Irish government might require help if further unexpected financial sector losses materialise and economic conditions deteriorate.

Cue much bond selling, taking yields on two-year bonds up to 3.63 per cent. The ECB has been buying small amounts of bonds today, according to traders in Dublin, but that is not unusual of late. Read more

S&P joins Fitch in placing Ireland on a sovereign rating of AA- today; Moody’s rating remains a notch higher at AA. Ireland keeps its second position in the PIIGS’ line-up, however, which runs broadly: Spain, Ireland, Italy, Portugal and then Greece. Play with the graphic below for more.

UK and French banks will be nursing losses this morning, after Irish bonds lost value yesterday. Rumours that that the ECB and Irish central bank were buying Irish bonds prompted us to look at banks’ sovereign debt holdings (the stress tests were useful, after all*).

RBS comes out with €1.1bn Irish debt in its trading books. It is followed by Credit Agricole (€0.76bn) and HSBC (€0.6bn). See chart, above. Read more

Ratings agency Moody’s has downgraded Ireland’s sovereign debt rating to Aa2 (stable) from Aa1 (negative). Ireland’s National Asset Management Agency (Nama), a special purpose bad-loan vehicle whose debt is fully guaranteed by the Irish government, was also downgraded to Aa2.

The action brings Moody’s rating in line with those of S&P. Fitch remains a notch below both Moody’s and S&P. Drivers for the change were given as follows: Read more

There are worries that a €11.5bn loan from the Irish central bank won’t be repaid, after it was discovered the loans were secured against Anglo’s loans to property developers. The Irish Independent reports:

Fresh doubts have emerged about the taxpayers’ final bill for bailing out Anglo Irish Bank after the Department of Finance admitted an €11.5bn loan given to the bank is secured on highly risky property loans. The Government has already earmarked €22bn for the nationalised bank, but if the €11.5bn loan remains unpaid it would bring the total bill to €33.5bn. Read more

Irish unemployment rose to 13.3 per cent in May, the highest rise among the 30 countries reported by Eurostat in its monthly unemployment bulletin. The previous rate, in April, was 12.9 per cent.

Hungarians, by contrast, recorded the greatest drop in unemployed, with 10.4 per cent, down from 10.9 per cent last month. Overall, six countries reported increasing unemployment, 10 recorded falling unemployment, and 14 remained static. Latvia, Spain and Estonia are still at the top of the European league with almost one in five of their labur force out of work, although two of these have not yet recorded up-to-date May figures. Read more

Irish banks might never be the same. New bank regulation legislation was passed yesterday, 69-65. The bill is now off to the upper house, the Seanad.

The Central Bank Reform Bill would merge the central bank with the regulator, giving the regulator’s consumer information roles to the national consumer agency. The new integrated central bank and regulator would be called the Central Bank Commission. Read more

Better than good news: the removal of bad news. Times two.

Ireland has stopped posting negative growth for the first time in more than two years, and the ECB auction suggests tomorrow’s end to one-year liquidity won’t trigger the meltdown many feared. Read more