Ireland's credit rating was recently downgraded by S&P, and its 10-year government bond yield jumped afterwords, in an apparent signal of diminished market confidence. The Irish government even tried to decry the downgrade decision publicly, which was a move we believed only diminished market confidence in the nation further, since demonizing the ratings firms is usually what troubled nations do and just reeks of desperation.
The smartest move for Ireland would have been to keep relatively silent after the downgrade and merely say 'We believe the downgrade is wrong and we shall prove it so in due course.'
Today the Irish government was able to execute a 600 million euro (~$760m) sale of short-term bonds and the issue was both over-subscribed and achieved a lower borrowing cost. Thus the market tossed some cold water on the recent downgrade from S&P.
The Dublin-based National Treasury Management Agency sold 200 million euros of securities due Feb. 14, 2011, at an average yield of 1.978 percent, 48 basis points lower than at an Aug. 12 sale. It also sold 400 million euros of April 18, 2011, debt at an average yield of 2.348 percent, down 46 basis points.
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Investors bid for 10.1 times the Feb. 2011 securities and 4.1 times the April 2011 debt. That compares with 3.6 times and 3.1 times at the Aug. 12 sale, respectively.
Ireland will hold its next auction of treasury bills on Sept. 9, the treasury agency said today. It is scheduled to hold its next bond sale on Sept. 21.
Still, the Irish bond market's action has been wild today. At first the 10-year yield had fallen (strengthened) by 50 basis points, and now it is up by about 50.
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