Ireland has long been seen as the eurozone economy most exposed to risks emanating from a UK outside of Europe. And those fears seems to be trickling through to the government bond market where yields on 10-year government debt have fallen to their lowest ever recorded level on Wednesday.
Ten-year yields, which move inversely to prices, fell basis 0.32 basis points (0.032 percentage points ) to hit a record low 0.598 per cent in Wednesday’s trading, reflecting investors’ concerns that the soaring growth levels in the former bailout economy will suffer after the Brexit vote.
At the time of the Irish financial crisis, falling yields would have been a sign of strength. Now they reflect concerns that growth across the euro area may be pinched.
The fall in bond yields reflects concerns about lower growth and comes as the safest government debt has rallied in the aftermath of the June 23 vote. Yields on 10-year German debt have slipped 0.12 basis points (0.01 percentage points) to -0.1312 per cent today.
Ratings agency Fitch warned yesterday the Irish economy faced “rising risks to growth” through lower trade and a hit to its competitiveness from a falling pound.
Britain accounted for 12.6 percent of Ireland’s total goods exports in the first quarter of the year, and 24 per cent of total goods imports. Ireland’s total exports to Britain account for 17 per cent of the country’s GDP, notes Fitch.
Uncertainty also abounds about the republic’s future relations with Northern Ireland following the vote.
Ireland’s economy grew at a blistering 7. 8 per cent last year, with GDP expected to expand by a more moderate 4.9 per cent this year, according to the European Commission.
Yields rose to as high as nearly 14 per cent at the height of the country’s debt woes in 2011, but have tumbled since its returned to the debt markets four years ago.
Borrowing costs have also been lowered by the European Central Bank’s landmark quantitative easing programme which is snapping up €80bn of private and sovereign debt a month.