No-deal Brexit fears hit Irish bond yields

IRISH government bond yield spreads over Germany were near their widest level since May as worries over the impact of a messy Brexit hurt demand for the country’s debt.

British Prime Minister Theresa May last week disclosed a draft agreement on leaving the EU which met with strong opposition within her party and could spark a confidence vote and increases the chances of a no-deal Brexit.

“A no-deal Brexit could have an adverse impact on Ireland’s economic picture, which would impact risk assets and have some effect on government bonds as well,” said a Commerzbank rates strategist.

“It could affect the country in general, it could impact the budget position, the deficit position, and generally weigh on risk assets as well.”

While government bonds are generally not considered risky assets, eurozone government debt – especially lower-rated debt – often tends to perform differently, since individual countries don’t have control over printing money.

While UK gilt yields dropped on the reaction to the Brexit proposal, Irish yields increased, with 10-year yields hitting 104.5pc on Friday. Yesterday, Irish yields were more or less unchanged and the spread between Irish and German 10-year bond yields was at 63 basis points, close to a fiveand-a-half-month high of 65.5 basis points hit on Friday.

German bonds have been the subject of flight-to-safety demand, increasing a lot of spreads across the eurozone.