Thursday, 4 November 2010

Speculators betting on our default will lose

By Donal O'Donovan and Thomas Molloy

FORMER Taoiseach John Bruton warned the bond markets in strong terms that speculators betting on an Irish default will lose a lot of money.
The comments came as the cost of sovereign debt hit a record 7.59pc yesterday. The former Taoiseach was speaking at IBEC's CEO conference in Dublin.
Meanwhile, two Russian sovereign wealth funds were instructed not to invest in Irish bonds. The instruction came from Russia's finance ministry yesterday and also applies to debt from Spain, another so-called peripheral economy.
In a mostly off-the-cuff speech, Mr Bruton told the IBEC conference that speculators betting on an Irish default were going to lose money.
Ireland remains a rich country, well capable of repaying its debts, he said.
Mr Bruton said sovereign rights fought for by previous generations come with sovereign responsibilities including repaying sovereign debt in full and on time.
Mr Bruton backed Finance Minister Brian Lenihan's insistence that Ireland will repay its debt.
"If this generation fails to repay its debts it would be a betrayal of the history of the country since the Act of Union in 1801," Mr Bruton said.
He added that politicians on all sides were now doing a good job to stabilise the situation.
"In Ireland in the run-up to an election, all political parties are prepared to set out the hard and difficult things that must be done to bring the public finances under control. How many other countries in the world can say that?" he said.


The price of Irish bonds fell for a seventh day yesterday; driving the yield paid to investors to 7.59pc.
The continued weakness means Irish 10-year bonds paying 5pc interest changed hands at just 82.36pc of face value. The rise in yields on Irish bonds came as the yield on German bunds was falling.
That meant the risk premium for holding Irish bonds, the spread over German bunds, widened to more than 5pc. Bloomberg said it was the widest spread since the information company began collecting the data in 1991.
Mr Lenihan said moves by Germany and France to introduce a new bailout regime are causing the spike in Irish yields.
Speaking at the same IBEC conference as Mr Bruton, he said this week's spike was due to concerns about a possible new restructuring mechanism for the eurozone. The proposals were unhelpful, he said.
He said he would not move the date of the December budget forward to reassure the bond markets. He would tell the opposition and the markets how much the Government intended to save later this week.
The cost of insuring Irish bonds with credit-default swaps (CDS) contract also hit a high yesterday.
CDS rose by 0.36pc to 5.54pc. That means it cost €554,000 to ensure €10m of bonds against losses within the next five years.
CDS controversially allows investors to buy more insurance than they hold bonds, incentivising them to push for defaults.

- Donal O'Donovan and Thomas Molloy

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