By Mark Brown and Katie Martin
LONDON–The Irish rescue package announced over the weekend has generated a lukewarm reaction in the European currency and debt markets, with choppy moves in the euro and only a modest recovery in bonds.
The 16-country currency initially rallied strongly in Asian trading hours after the €85 billion aid package was revealed, jumping 0.8% to hit $1.3355. It quickly dropped back again, however, hitting a two-month low at $1.3182. It followed a similar pattern against the Swiss franc.
As European trading got underway, the euro started climbing again, but market watchers are uncertain about where it is heading next, or how the Irish aid package will affect it in the long term.? “The package provides an indication that European policymakers are willing to act, and in size if necessary. This could help stem the rot in the euro,” said Daragh Maher, a senior currencies analyst at French bank Credit Agricole in London.
However, Maher also said he was “reluctant to talk about an immediate relief rally” in the currency, noting that investors remain nervous about Portugal.
The euro recently traded at $1.3255. It was at 1.3277 Swiss francs, having recovered from a two-month low of 1.3221 francs.
Sovereign bond markets saw a similarly modest and uncertain reaction. The yield-spread between Irish, Portuguese and Spanish 10-year bonds and 10-year German bunds tightened by between 0.04 and 0.06 percentage points in each case. Ten-year bund yields were up 0.053 percentage points at 2.748%.
“Bond markets haven’t really done much,” said one analyst. “They are digesting the package, but [market participants] don’t detect a great deal of difference in the overall [euro-zone sovereign] picture from the end of last week.”
The Irish aid package will consist of €67.5 billion from EU, and IMF funds and bilateral loans from the U.K., Sweden and Denmark. The Irish state will also contribute €17.5 billion, which come from the country’s National Pension Reserve Fund and from other domestic cash resources.
Ireland will pay an average interest rate of 5.8%, if the facility is completely drawn down.
(Neelabh Chaturvedi, Nick Andrews, Ainsley Thomson, Quentin Fottrell and Nick Winning contributed to this article.)
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