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Irish bonds benefit from calm aftermath of Greek storm

Taking stock after a month of crisis, analysts said yesterday that most European bond yields, including Ireland’s, have weathered well as fears about the Greek exit abated, while the euro has weakened against sterling as the UK interest rates rise draws closer.

Greece yesterday effectively sealed the agreement it stuck with the troika by starting the process for the repaying a total €6.25bn to the ECB and the IMF. Greece is paying €4.2bn in principal and interest to the ECB due on Monday and €2.05bn to the IMF that has been in arrears since June 30, the officials said. It is also repaying a €500m loan to the Greek central bank.

The country secured €7.16bn in bridge financing from the European Financial Stability Mechanism last week — enough to see Athens through July — and the opening of negotiations with its lenders on a third bailout program.

Reviewing the markets of the last few weeks, Ryan McGrath, head of fixed income at Cantor Fitzgerald Ireland, said that the Grexit risk premium troubling European government bonds was now abating, though had not totally disappeared in the case of Ireland.
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The yield on the Irish 10-year bond was trading yesterday at 1.33%, much lower than the 1.65% hit at the height of the Greek crisis before Athens struck the deal with the troika, but nonetheless still higher than 1.2% before the current phase of the eurozone crisis flared a month ago.

Other former bailout countries have also benefited from the calming in the Greek market crisis. The cost to the Portuguese government of borrowing for 10 years from international debt markets yesterday posted gains for the 10th straight day to trade at 2.58%, the same as a month ago, and down from the level of 2.85% hit on ‘fearful Friday’ a few weeks ago, said Mr McGrath.

Among the winners over the past month has been Italy. Italian government bonds yesterday advanced, pushing 10-year yields to a seven-week low, as Greece gave the order to repay creditors after last week’s tentative bailout deal.

Italy’s 10-year bond yield eased yesterday to 1.91%, compared with 2.13% at the height of the Greek crisis, and closer to the 1.85% yield a month ago.

“The relief on Greece could only be positive for the peripheral markets,” said Ipek Ozkardeskaya, an analyst at London Capital Group in London.

The euro yesterday rose slightly against sterling but remains much weaker over the past month despite the easing of Greek tensions.

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