Election 2020: Irish bond yields stay low despite SF polls surge
Irish sovereign bonds continue to trade close to record lows, despite opinion polls suggesting a surge in support for Sinn Féin at the start of the final week of the election.
Other European election campaigns, including in Italy and Spain, in the recent past, had led to an increase in sovereign market borrowing costs.
Sovereign rating firm DBRS Morningstar said the Irish polls suggested that “the elections could yield another fractured outcome, which would result in another minority government or a multi-party coalition government.”
However, it expects the outcome of the election won’t derail “stable macroeconomic policy-making.”
Ryan McGrath, head of fixed income at Cantor Fitzgerald Ireland, said Irish bonds have had a good run in the last 10 days, as investors moved money from shares into safe haven eurozone bonds, amid fears the coronavirus outbreak will weigh on economic growth around the world.
ECB purchases for eurozone bonds have also long played a huge part in keeping the cost of borrowing for governments at close to zero.
“The election hasn’t been a major factor, so far,” Mr McGrath said.
In essence, the market believes that, ultimately, it will be one of the two established parties who will end up in power and I think there is an element of trust that Ireland will remain fiscally compliant.
Mr McGrath said the State can refinance at “very attractive levels,” adding that whatever the outcome of the election, bond yields would likely remain at very low levels for the foreseeable.
The yield on the Irish 10-year bond traded at minus-13 basis points, compared with minus-11 basis points before the election campaign, and not far from August’s record low of minus-15 basis points.
Irish bond yields are trading close to those of France, while Germany continues to be the standout sovereign borrower, with its 10-year yield trading at minus-43 basis points.
In some other parts of the eurozone, the governments of Portugal, at plus-27 basis points, Spain, at 24 basis points, and Italy, at 95 basis points, continue to pay albeit low costs to borrow and refinance their debts.
With a much higher base rate, the UK’s 10-year gilt trades at plus-52 basis points.
Conall Mac Coille, chief economist at Davy, said the polls had, so far, made no marked impression on Irish bonds.
It would be a concern for investors if there were uncertainty around the government or some sort of uncertainty emerged about maintaining budget surpluses in the medium-term, he said.
