The Irish government is able to tap among the cheapest borrowing costs in Europe — with only Germany and Switzerland having access to significantly lower rates.
The snapshot of sovereign borrowing costs at the start of the week also suggests the gap between Irish and British government borrowing costs is widening, as concerns grow that British interest rates will have to go higher and further, even compared with the hikes likely coming down the line from the European Central Bank.
Ireland’s Government interest rate, or yield, on its 10-year bond was trading on Monday evening at about 2.87%, down from late last week.
In the eurozone, the Netherlands and Germany are the only governments that have to pay less to their investors to buy their bond debt, with their equivalent 10-year interest rates trading at 2.8% and 2.43%, respectively.
The snapshot of the European bond markets also shows the Irish rate of 2.87% is lower than the 3% rate in France, following a long period when the rates of the two countries were in close step.
Irish Government borrowing costs also compare with Portugal’s 3.17% and Greece’s 3.87%, countries that like Ireland were forced to tap costly bailouts from the troika of the EU, ECB and IMF just over a decade ago, before regaining their access to international debt markets.
According to Trading Economics data, Ireland can also borrow more cheaply than Spain at 3.49%, and Italy where the implied cost of the government there to borrow for 10 years is trading at 4.28%.
Outside the eurozone, Switzerland has one the lowest borrowing costs in Europe, at 1.13%, while Britain at 4.33% has one of the highest borrowing costs.
S&P Global Ratings upgraded Ireland’s credit score to AA, the same rating as that of Britain.
Since the extent of the budget surpluses became clearer last summer, Ireland’s yields started to fall bellow of those of France and have started to get nearer to those in the Netherlands, “an AAA rated country, and we are not”, said Conall MacCoille, chief economist at Davy.
The lower debt ratios and large budget surpluses compared with deficits elsewhere, and the long maturity profile of Irish bond debt are all helping push Irish yields lower, he said.
Dermot O’Leary, chief economist at Goodbody, said Ireland had become a much more credit-worthy place in a relatively short period, as the economy prospered.
“That has also been reflected in the action of the credit rating agencies, which reflect that more credit-worthy status,” Mr O’Leary said.
“Things look relatively good for Ireland now, but we have been shown to have a volatile record,” Mr O’Leary said, citing vulnerabilities in the overall tax revenues, and corporation tax revenues, in particular.
He said although the budget surpluses meant the requirement for additional borrowing was low in the immediate few years, the State still required to keep the credit lines open in case the need returned for large-scale financing in the future.
