Ireland's crisis flares as investors dump bonds

DUBLIN – Ireland’s financial troubles loomed large Wednesday as investors — betting that the country soon could join Greece in seeking a bailout from the European Union — drove the interest rate on the country’s 10-year borrowing to a new high.

The yield, or interest rate, on 10-year bonds rose above 8 percent for the first time since the launch of the euro, the European Union’s common currency, 11 years ago.

Bond traders increasingly believe that Ireland soon will be forced to tap Europe’s emergency fund for euro-zone nations facing a threat of bankruptcy. The 16 nations of the euro zone created that euro750 billion backstop in May as the EU and International Monetary Fund provided an emergency euro110 billion loan to Greece.

Another bailout would send more shock waves through the currency union, which has struggled to find ways to keep individual governments from overspending and threatening the currency’s value.

Flaring financial tensions has driven the euro off recent 6-month highs of $1.428 versus the dollar. The euro was trading Wednesday at $1.3760, down from its opening of $1.3773.

The cost of funding Irish debt has risen steadily since September, when the government admitted its bailout of five banks would cost at least euro45 billion, equivalent to euro10,000 for every man, woman and child in Ireland. That gargantuan bill, in turn, has made the projected 2010 deficit rise to 32 percent of GDP, the highest in post-war Europe.

The yield on 10-year Irish notes rose steadily from 7.94 percent and passed 8.4 percent in afternoon trade. As the value of bonds fall, buyers demand ever-higher yields as compensation.

Traders accelerated their offloading of Irish bonds after London-based LCH.Clearnet Group announced Wednesday it would require clients who deal in Irish bonds to increase the percentage of cash deposited up front to 21 percent, compared to a usual deposit of less than 6 percent. The move came on top of decisions this month by the governments of Russia and Chile to stop buying Irish debt.

Read Full Article