Irish sovereign bonds have reached new highs

The Irish are messing up the pre-X-mas rally in equity markets I anticipated!

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Irish sovereign bonds have reached new highs in the last days (7.9% for the 10yr bond). In our view, the high probability of default implied by the recent hike in spreads is more a reflection of very negative market sentiment and recent press releases than a result of changes in underlying macroeconomic and financial fundamentals. The increase in the spreads has followed a series of negative press reports on the potential losses of the banking system, including in the two largest banks. In addition, there is considerable uncertainty regarding the ability of the government to get Parliamentary support on December 7 2010 on the 2011-2014 fiscal adjustment programme, which aims at reducing the deficit to below 3% of GDP by 2014.

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source: Barclays Capital

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