Irish CDS Rate Hits Record 433 Basis Points

Irish government bond yields rose and the cost of insuring sovereign debt against default is up ongoing concerns over the cost of bailing out Ireland’s troubled banking sector.

The spread on five-year Irish sovereign credit default swaps hit 433 basis points, up from 387 basis points on Thursday -- soaring to the widest level on record, according to data provider Markit. That means it would now cost $433,000 a year to insure $10 million of government debt against default, up $36,000 from Thursday.

Analysts tied the current weakness in part to a research note published Thursday by Barclays Capital warning that the Irish government could eventually be forced to seek outside help from the International Monetary Fund and European Union if the fiscal situation proves worse than expected.

The Irish treasury has met its 2010 funding needs, the analysts noted, and has a liquidity buffer of around 24 billion euros, which means “there are no material liquidity concerns for the sovereign for the rest of the year.”

The report warned, however, that the government may eventually need to seek “outside help” if “further unexpected financial-sector losses materialize or macroeconomic conditions deteriorate beyond our baseline forecasts in the coming months.”

Ireland’s bank restructuring effort, equal to around 24% to 31% of GDP, and concerns about the impact of a struggling economy on banks’ loan portfolios have contributed to turmoil in Irish bond markets in recent weeks, the analysts noted.

(ViaMarketWatch)