CHART: The rise and fall of Irish bond yields

A statue of union leader Jim Larkin in Dublin. Photo: Getty Images

Few other nations around the world understand the meaning of a boom-bust economic cycle better than Ireland.

In the space of just a few years the nation went from a perceived economic nirvana to nightmare, thrown into a deep recession due to an enormou, and well-publicised housing collapse brought on by the onset of the global financial crisis.

The nation’s banks were on the brink of collapse, leaving the government little choice but to accept an €67.5 billion bailout from the EU-IMF in 2010 in order to prevent an even greater economic calamity.

The nation was locked out of international bond markets for years, only resuming new issuance in mid-2012.

Thankfully, things have improved dramatically in recent years. Economic growth has resumed and, in response, solvency concerns have abated.

Helped by collapsing bond yields, courtesy of ultra-loose monetary policy settings from the European Central Banks, and greater confidence in the nation’s fiscal outlook, things have improved so much recently that the government was able to issue €100 million in debt for 100 years in March this year.

And the coupon that investors demanded for such long-dated debt? A tidy, and more importantly significantly, 2.5%.

The excellent chart below, supplied by ANZ’s rates strategy team, shows the yields on 2- and 10-year Irish government debt going back to 2009. It really tells the story.

Not a bad effort for a nation that less than seven years earlier was on the brink of collapse.

“The trend to longer-dated sovereign issuance makes sense in an environment of globally low yields and from the perspective of both investors looking for duration and (most certainly) for the debt management offices who can take advantage of this situation,” said Martin Whetton and Katie Hill, members of ANZ’s rates strategy team.

However, Whetton and Hill note that investing for such a long period of time is not without its risks.

“But what goes up can go down,” notes the pair. “In the bond market tantrum of April-May 2015, Mexican 100-year bonds lost around a quarter of their value.”

Something to consider, particularly in light of recent history.

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